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entitled 'Improper Payments: Federal and State Coordination Needed to
Report National Improper Payment Estimates on Federal Programs' which
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Report to the Chairman, Subcommittee on Government Management, Finance,
and Accountability, Committee on Government Reform, House of
Representatives:
April 2006:
Improper Payments:
Federal and State Coordination Needed to Report National Improper
Payment Estimates on Federal Programs:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-347]
GAO Highlights:
Highlights of GAO-06-347, a report to the Chairman, Subcommittee on
Government Management, Finance, and Accountability, Committee on
Government Reform, House of Representatives:
Why GAO Did This Study:
Over the past several years, GAO has reported that federal agencies are
not well positioned to meet requirements of the Improper Payments
Information Act of 2002 (IPIA). For fiscal year 2005, estimated
improper payments exceeded $38 billion but did not include some of the
highest risk programs, such as Medicaid with outlays exceeding $181
billion for fiscal year 2005. Overall, state-administered programs and
other nonfederal entities receive over $400 billion annually in federal
funds. Thus, federal agencies and states share responsibility for the
prudent use of these funds. GAO was asked to determine actions taken at
the state level to help federal agencies estimate improper payments for
state-administered federal programs and assistance needed from the
federal level to support the respective federal agencies’
implementation of IPIA.
What GAO Found:
To date, states have been subject to limited requirements to assist
federal agencies in estimating improper payments. For the 25 major
state-administered federal programs surveyed, only 2 programs—the Food
Stamp and Unemployment Insurance programs—have federal requirements for
all states to estimate improper payments. A limited number of federal
agencies are conducting pilots to estimate improper payments in other
programs, but state participation is voluntary. Where no federal
requirement or pilot is in place, 5 programs involving 11 states had
estimated improper payments during fiscal years 2003 or 2004.
Number of States in GAO Survey Estimating Improper Payments:
[See PDF for image]
Note: The 51 states are the 50 states and the District of Columbia.
[End of figure]
States have a fundamental responsibility to ensure the proper
administration of federal awards by using sound management practices
and maintaining internal controls. To do this, states reported using a
variety of techniques to prevent and detect improper payments. All
states, except for one, responded that they use computer-related
techniques, such as fraud and abuse detection programs or data
matching, to prevent or detect improper payments. Other techniques
selected states used included performing statewide assessments and
recovery auditing methods. States also reported receiving federal
incentives and penalties to assist with reducing improper payments,
although most of these actions related to the Food Stamp Program, which
gives incentives and penalties to states having error rates below and
above the program’s national error rate.
Of the 240 state program officials surveyed, 100 identified tools that
would be needed to estimate improper payments and help federal agencies
meet various IPIA requirements, including guidance on estimating
improper payments and performing risk assessments. OMB has begun
planning for increased state involvement in measuring and reporting
improper payments via the Erroneous and Improper Payments Workgroup and
IPIA guidance. However, much work remains at the federal level to
identify and estimate improper payments for state-administered federal
programs, including determining the nature and extent of states’
involvement to assist federal agencies with IPIA reporting
requirements.
What GAO Recommends:
GAO is making four recommendations to the Office of Management and
Budget (OMB) to better assist federal agencies’ implementation of IPIA
requirements for state-administered federal programs, including
determining states’ role in assisting federal agencies to report
national improper payment estimates on federal programs. OMB agreed
with GAO’s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-06-347.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact McCoy Williams at (202)
512-9095 or williamsm1@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Estimating Improper Payments at the State Level Is Limited:
States Reported Using Various Techniques to Detect, Prevent, or Reduce
Improper Payments:
Federal Action Needed to Help States Report Improper Payment
Information:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: States and Programs Included in Our Review:
Appendix III: Food Stamp Quality Control System:
Appendix IV: UI Benefit Accuracy Measurement and National Directory of
New Hires Database:
Appendix V: Highway Planning and Construction Pilot to Estimate
Improper Payments:
Appendix VI: Medicaid Payment Accuracy and Payment Error Rate
Measurement Project:
Appendix VII: Comments from the Office of Management and Budget:
Appendix VIII: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Program Use of Computer-Related Techniques:
Table 2: Amount of Improper Payments Collected through State Recovery
Auditing Efforts:
Table 3: Number of States for Which Each of the 25 Programs Was Defined
as Major:
Table 4: Number of Major Programs in Each State:
Table 5: Food Stamp Improper Payment Amounts by State for Fiscal Years
2003 and 2004:
Table 6: Summary of Factors Contributing to Declining Food Stamp
Improper Payment Error Rates and Amounts:
Table 7: UI Overpayments and Underpayments by State for Calendar Years
2003 and 2004:
Table 8: Number of States Participating in CMS's Medicaid Pilots to
Estimate Improper Payments:
Table 9: Timeline of CMS Regulations and Initiatives to Estimate
Medicaid Improper Payments:
Figures:
Figure 1: Number of States in Our Survey Estimating Improper Payments:
Figure 2: Food Stamp National Payment Error Rate, Fiscal Years 1999-
2004:
Figure 3: UI Overpayment National Error Rates, Calendar Years 1988-
2004:
Figure 4: Example of Test Procedures for Asphalt:
Letter April 14, 2006:
The Honorable Todd R. Platts:
Chairman:
Subcommittee on Government Management, Finance, and Accountability:
Committee on Government Reform:
House of Representatives:
Dear Mr. Chairman:
Each year federal agencies expend more than $2 trillion through
thousands of programs and activities to address the needs of the
American people. Of this amount, over $400 billion in federal funds are
distributed to states and other nonfederal entities. These funds,
typically issued through grants, are used to implement over 1,000
individual programs from 26 federal grant-making agencies.[Footnote 1]
As the steward of taxpayer dollars, the federal government is
accountable for how its agencies and grantees spend this money,
including the safeguarding of federal funds from improper payments.
Grantees are also responsible for ensuring that funds are used for the
purposes for which the funds were provided.
Our work over the past several years has demonstrated that improper
payments are a significant and widespread problem in the federal
government, with agencies reporting improper payments over $38 billion
in their fiscal year 2005 performance and accountability reports (PAR).
This estimate, however, does not include all programs. In our review of
agencies' fiscal year 2005 PARs,[Footnote 2] we noted that some
agencies still have not instituted systematic methods of reviewing all
programs and activities, have not identified all programs susceptible
to significant improper payments, or have not annually estimated
improper payments for their high-risk programs. For example, seven
state-administered[Footnote 3] federal programs with outlays totaling
about $228 billion still have not been annually estimated for improper
payments, even though the Office of Management and Budget (OMB)
required them to report such information about 4 years ago in their
fiscal year 2003 budget submissions.
The Improper Payments Information Act of 2002 (IPIA)[Footnote 4]
prompted all executive branch agencies to systematically address
improper payment activity annually. While states do not have a direct
role in meeting IPIA requirements, they do play an important role in
federal fund stewardship. In particular, states are responsible for the
proper administration of federal awards through using sound management
practices and maintaining internal control.[Footnote 5] Payments, as
defined under IPIA, include payments made by a governmental or other
organization administering a federal program or activity. An improper
payment is defined by IPIA as any payment that should not have been
made or that was made in an incorrect amount, a duplicate payment, and
payment for services not rendered or rendered to ineligible
beneficiaries. OMB's implementing guidance for IPIA[Footnote 6]
requires that estimates of improper payments, and if applicable, a
corrective action report, be included in all federal executive branch
agencies' PARs beginning with fiscal year 2004.
Because of the Subcommittee's continued interest in addressing the
governmentwide improper payments issue, you asked us to determine (1)
what actions are being taken by states to assist federal agencies in
estimating improper payments; (2) what techniques related to detecting,
preventing, or reducing improper payments have states employed to
ensure the proper administration of federal awards; and (3) what
assistance can be provided by OMB that state program administrators
would find helpful in supporting the respective federal agencies with
the implementation of IPIA.
To identify states' actions and assistance needed, we conducted a
survey of all 50 states and the District of Columbia regarding actions
to estimate improper payments for state-administered federal programs
for fiscal years 2003 and 2004. Statewide surveys were completed by
state officials with knowledge of statewide administration of
operations. We received 50 of the 51[Footnote 7] statewide surveys for
a response rate of 98 percent. In addition, program-specific surveys
were completed by state program administrators or directors for the
major programs in each state. We received 227 of 240 program-specific
surveys for a response rate of 95 percent. The high response rates for
the variety of state-administered programs provided a wide range of
survey responses regarding actions to address improper payments.
For the purposes of this review, we defined major programs as those
state-administered programs that expended the largest amounts of
federal funds in decreasing order, which in aggregate covered at least
60 percent of the total federal portion of state-administered
expenditures in each state. Together, the states identified 25 programs
as major (see table 3 in app. I). The 5 most common major programs were
Medicaid (all 51 states), Highway Planning and Construction (44
states), Food Stamp (36 states), Temporary Assistance for Needy
Families (28 states), and Unemployment Insurance (26 states). As shown
in table 4 in appendix I, the number of major programs varied from 1 to
12 programs per state, and in total, added up to the 240 program-
specific surveys we sent. We also visited selected states that had
ongoing initiatives already in place to estimate improper payments for
certain programs, conducted interviews with OMB and other federal
officials as well as state officials regarding state efforts to
estimate improper payments, and reviewed federal agencies' fiscal year
2005 PARs and prior GAO and office of inspector general (OIG) reports.
We conducted our work from April 2005 through December 2005 in
accordance with generally accepted government auditing standards. See
appendix I for more details on our scope and methodology.
Results in Brief:
To date, states have been subject to limited requirements to assist
federal agencies in estimating improper payments. For the 25 major
programs surveyed, only 2 programs--the Department of Agriculture's
(USDA) Food Stamp Program and the Department of Labor's (Labor)
Unemployment Insurance (UI) Program--have federal requirements for all
states to estimate improper payments. A limited number of federal
agencies are conducting pilots to estimate improper payments for
certain state-administered programs, but state participation is
voluntary. Where no federal requirement or pilot is in place, 11 states
estimated improper payments involving 5 programs during fiscal years
2003 or 2004.
States have a fundamental responsibility to ensure the proper
administration of federal awards by using sound management practices
and maintaining internal controls. To ensure proper administration of
federal funds, states reported using a variety of techniques to
prevent, detect, and reduce improper payments. All states, except for
1, responded that they use computer-related techniques, such as fraud
and abuse detection programs or data matching for this purpose. Twenty-
one of the 51 states in our survey responded that they have performed a
statewide assessment of their programs to identify those that may be at
risk for improper payments.
In addition, 15 states reported that they conducted recovery audits in
fiscal year 2003, fiscal year 2004, or both, collectively recovering
over $335 million for the 2 fiscal years. Thirty-two states reported
receiving federal incentives, such as enhanced funding or reduced
reporting requirements, for reducing improper payments, and 17 states
reported receiving federal penalties, such as decreased funding and
increased reporting requirements, for failing to reduce improper
payments. Most of these actions related to the Food Stamp Program,
which applies incentives and penalties to states having error rates
below and above the national error rate, respectively.
Of the 227 program surveys received, 100 of the state program
administrators or their designees responded that guidance or resources
from OMB, cognizant federal agencies, or both were needed if the states
were to assist the federal agencies in meeting the requirements of
IPIA. Specifically, state program officials requested guidance on
estimating improper payments and performing risk assessments. Selected
states also asked for additional funding to subsidize efforts, if they
were required to estimate improper payments; requested that OMB and
federal agencies share best practices and available guidance; and
requested that their input be considered prior to any state IPIA
program reporting requirement taking effect.
OMB has recognized the important role that states have in assisting
federal agencies to meet the requirements of IPIA. In August 2005, OMB
issued Circular No. A-136, Financial Reporting Requirements, to
consolidate, clarify, and update existing guidance relating to agency
and governmentwide financial reporting. Among other things, OMB
specifically requires federal agencies with grant-making programs to
report in their fiscal year 2005 PARs accomplishments in the area of
funds stewardship beyond the primary recipient[Footnote 8] and the
status of projects under way and results of any reviews. Our review of
the fiscal year 2005 PARs showed that in general federal agencies
either did not report on their grant-making activities, did not clearly
identify grant programs, or did not address fund stewardship beyond the
primary recipient.
OMB has continued to conduct its improper payments work through the
Chief Financial Officers Council (CFOC) and President's Council on
Integrity and Efficiency's (PCIE) Erroneous and Improper Payments
Workgroup. The workgroup, consisting of federal agency chief financial
officers, OMB officials, and inspectors general, periodically convenes
to discuss and develop best practices and other methods to reduce or
eliminate improper payments. It has issued reports and other products
to CFOC/PCIE, reflecting workgroup deliberations and determinations.
One of these products was a report on initial considerations regarding
state and grantee involvement in the process of developing
methodologies for federal agencies to estimate improper payments.
In November 2005, OMB issued draft revisions to its IPIA implementing
guidance. This implementing guidance, together with recovery auditing
guidance, is to be consolidated into future Parts I and II of Appendix
C to OMB Circular No. A-123, Management's Responsibility for Internal
Controls (Dec. 21, 2004).[Footnote 9] While this guidance begins the
process to further address the complexities related to reporting
improper payment information for federally funded, state-administered
programs, additional enhancements could be made that address how
federal agencies define state-administered programs and the methodology
to be employed for generating a national estimate. Specifically, we
found that the proposed changes do not clearly define the term state-
administered programs. Without a clear definition, OMB is at risk of
receiving inconsistent improper payment reports because agencies could
define programs differently. In addition, we noted that the draft
guidance did not provide basic criteria, such as the nature and extent
of data and documentation that agencies should consider when developing
a plan or methodology to calculate a national improper payment error
rate for these state-administered programs.
We are making four recommendations to OMB to help ensure successful
implementation of IPIA requirements for federally funded, state-
administered programs. Specifically, we recommend that OMB (1) clearly
define in its IPIA guidance the term state-administered programs so
that federal agencies can consistently identify all such programs; (2)
provide criteria in its IPIA guidance that address the nature and
extent of data and documentation needs to calculate a national improper
payment estimate; (3) communicate and make available to states guidance
on conducting risk assessments and estimating improper payments for
federally funded, state-administered programs; and (4) share ideas,
concerns, and best practices with federal agencies and states regarding
improper payment reporting requirements for these programs.
In commenting on a draft of this report, OMB agreed with our
recommendations and highlighted several initiatives under way to ensure
that accurate improper payment rates can be generated without creating
an undue cost and burden on federal agencies or state partners that
manage federally funded programs. OMB also provided technical comments
that we incorporated, as appropriate. OMB's written comments are
reprinted in appendix VII.
Background:
In November 2002, the Congress passed IPIA. The major objective of IPIA
is to enhance the accuracy and integrity of federal payments. The law
requires executive branch agency heads to annually review all programs
and activities that they administer, identify those that may be
susceptible to significant improper payments, and estimate and report
annually on the amount of improper payments in those programs and
activities. IPIA also requires the agencies to report annually to the
Congress on the actions they are taking to reduce erroneous payments
for programs for which estimated improper payments exceed $10 million.
IPIA further requires OMB to prescribe guidance for federal agencies to
use in implementing the act. OMB issued this guidance in Memorandum M-
03-13 in May 2003. It requires use of a systematic method to annually
review and identify those programs and activities that are susceptible
to significant improper payments. OMB guidance defines significant
improper payments as annual improper payments in any particular program
exceeding both 2.5 percent of program payments and $10 million. The OMB
guidance then requires agencies to estimate the annual amount of
improper payments using statistically valid techniques for each
susceptible program or activity. For those agency programs, including
state-administered programs, determined to be susceptible to
significant improper payments and with estimated annual improper
payments greater than $10 million, IPIA and related OMB guidance
require each agency to report the results of its improper payment
efforts. OMB guidance requires the reporting to be in the Management
Discussion and Analysis section of the agency's PAR for each fiscal
year ending on or after September 30, 2004. IPIA requires the following
information to be reported to the Congress:
* a discussion of the causes of the improper payments identified,
actions taken to correct those causes, and results of the actions taken
to address those causes;
* a statement of whether the agency has the information systems and
other infrastructure it needs to reduce improper payments to minimal
cost-effective levels;
* if the agency does not have such systems and infrastructure, a
description of the resources the agency has requested in its most
recent budget submission to the Congress to obtain the necessary
information and infrastructure; and:
* a description of the steps the agency has taken and plans to take to
ensure that agency mangers are held accountable for reducing improper
payments.
OMB's guidance in M-03-13 requires that three additional things be
included in the PAR:
* a discussion of the amount of actual erroneous payments that the
agency expects to recover and how it will go about recovering them;
* a description of any statutory or regulatory barriers that may limit
the agency's corrective actions in reducing improper payments; and:
* provided the agency has estimated a baseline improper payment rate
for the program, a target for the program's future improper payment
rate that is lower than the agency's most recent estimated error rate.
In August 2004, OMB established Eliminating Improper Payments as a new
program-specific initiative in the President's Management Agenda (PMA).
The separate improper payments PMA program initiative began in the
first quarter of fiscal year 2005. Previously, agency efforts related
to improper payments were tracked along with other financial management
activities as part of the Improving Financial Performance initiative.
The objective of establishing a separate initiative for improper
payments was to ensure that agency managers are held accountable for
meeting the goals of IPIA and are therefore dedicating the necessary
attention and resources to meeting IPIA requirements. This program
initiative establishes an accountability framework for ensuring that
federal agencies initiate all necessary financial management
improvements for addressing this significant and widespread problem.
Specifically, agencies are to measure their improper payments annually,
develop improvement targets and corrective actions, and track the
results annually to ensure the corrective actions are effective.
Estimating Improper Payments at the State Level Is Limited:
State responses to our survey show that the number of state-
administered federal programs (state programs) estimating improper
payments significantly decreases if there is no federal requirement to
estimate or if the states are not participating in a federally
administered pilot to estimate. For the 25 major programs reviewed for
fiscal years 2003 and 2004, all 51 states estimated improper payments
where there was a federal requirement to do so. For the federally
administered improper payment pilots, the number decreased to 29
states. Where there was no federal requirement or pilot in place, only
11 states reported estimating improper payments on their own
initiative, as shown in figure 1.
Figure 1: Number of States in Our Survey Estimating Improper Payments:
[See PDF for image]
Note: The 51 states are the 50 states and the District of Columbia.
[End of figure]
Programs with Federal Requirements:
Only 2 of the 25 major programs in our review had federal requirements
for all the states to annually estimate improper payments--the Food
Stamp and UI programs. In total, 47 states reported estimating improper
payments for one or more major programs, which represented 97 program
surveys for fiscal year 2003, fiscal year 2004, or both. More than half
of the reported estimates were for the Food Stamp and UI
programs.[Footnote 10] Food Stamp and UI program outlays expended by
the states totaled about $61 billion for fiscal year 2004. This
constitutes about 15 percent of the total federal funds that are
estimated to be annually distributed to states and other nonfederal
entities for redistribution to eligible parties. Both of these programs
are benefit programs, have a history of measuring improper payments
through established systems, and can calculate a national error rate.
* The purpose of the Food Stamp Program is to help low-income
individuals and families obtain a more nutritious diet by supplementing
their incomes with benefits to purchase food. As reported in USDA's
fiscal year 2005 PAR, the causes of improper payments in the Food Stamp
Program include client errors, such as incomplete or inaccurate
reporting of income, assets, or both by participants at the time of
certification or by not reporting subsequent changes. Causes can also
be provider based, such as errors in determining eligibility or benefit
amounts or delays in action or inaction on client reported changes. The
Food Stamp quality control system[Footnote 11] measures payment
accuracy and monitors how accurately states determine food stamp
eligibility and calculate benefits. USDA reports a rate and dollar
amount of estimated improper payments for the Food Stamp Program in its
annual PAR based on the quality control system. In its fiscal year 2005
PAR, USDA reported a national improper payment error rate of 5.88
percent, or $1.4 billion, for the Food Stamp Program. A national error
rate is calculated and incentives and penalties are applied to the
states that have rates lower or higher than the national rate. Recent
initiatives reported in USDA's fiscal year 2005 PAR include the
agency's fiscal year 2004 nationwide implementation of an electronic
benefit transfer (EBT) system for the delivery of food stamp benefits.
The EBT card, which replaced paper coupons, creates an electronic
record for each transaction that makes fraud easier to detect. Other
USDA efforts include Partner Web, which is an intranet for state food
stamp agencies, and the National Payment Accuracy Workgroup, which
consists of representatives from USDA headquarters and regional offices
who meet to discuss best practice methods and strategies. (See app. III
for more details on the Food Stamp Program.)
* The UI Program provides temporary cash benefits to workers who lose
their jobs through no fault of their own. Labor reported in its fiscal
year 2005 PAR that the principal cause of improper payments was
claimants who continue to claim benefits despite having returned to
work. Pursuant to Part 602 of Title 20, Code of Federal Regulations,
Labor implemented the Benefit Accuracy Measurement system to measure
state payment accuracy in the UI Program.[Footnote 12] Labor also
reports a rate and dollar amount of estimated improper payments for the
UI Program in its annual PAR. In its fiscal year 2005 PAR, Labor
reported an annual error rate of 10.13 percent, or $3.2 billion, for
the UI Program. Labor's initiatives to reduce improper payments in the
UI Program include implementing new cross-matching technologies like
the National Directory of New Hires database and funding states' data-
sharing efforts with federal agencies, such as the Social Security
Administration, and other state agencies, such as the state departments
of motor vehicles. Further, Labor is instilling additional performance
measures for states to detect and recover overpayments of benefits and
continuing analyses of the causes, costs, and benefits of improper
payment prevention or establishing recovery operations. (See app. IV
for more details on the UI Program.)
Federal Programs with Pilots:
Twenty-nine states in our review responded in our surveys or during
interviews that they voluntarily participated in federally administered
pilot projects to estimate improper payments. We visited the state
participating in the Department of Transportation's (DOT) Highway
Planning and Construction Program and one of the states participating
in the Department of Health and Human Services' (HHS) Medicaid program
and discussed the states' efforts to measure improper payments. These
pilots serve as models for the federal agencies on obtaining improper
payment information and establishing a methodology for other states to
estimate improper payments for those programs. Neither of the two
pilots was sufficiently comprehensive to allow the responsible federal
agency to project an error rate with statistical precision to all of
the states.
* DOT provides funding to the state departments of transportation to
administer the nation's federal Highway Planning and Construction
Program. During our review, DOT had a pilot in place to estimate
improper payments for two construction projects in Tennessee. The
sampled transactions reviewed to identify improper payments for these
two projects were selected from a population of almost $35 million,
which represented a small portion of DOT's fiscal year 2005 outlays
totaling $31 billion for the Highway Planning and Construction
Program.[Footnote 13] For one of these projects, DOT reported that the
estimated improper payments amount was statistically insignificant. For
the other project, DOT reported an improper payment estimate of
$111,671. The methodology and testing procedures that resulted from
DOT's pilot project will be used to extend the methodology nationwide.
In its fiscal year 2005 PAR, DOT reported a zero-dollar improper
payment estimate for this program. However, the DOT OIG also reported
that detecting improper payments for several grant programs, including
the Highway Planning and Construction Program, was a top management
challenge for the agency. In particular, the OIG reported that the DOT
pilot project was too limited and that OIG investigators continue to
identify instances of improper payments. The OIG cited two improper
payment examples totaling over $1.3 million, which was reimbursed to
DOT as a result of OIG investigations. In response, DOT is reorganizing
and redesigning its procedures to better improve oversight of research
agreements. This includes creating a new division within DOT's Office
of Acquisition Management devoted to the award and administration of
cooperative agreements. (See app. V for more details on the improper
payment pilot for the Highway Planning and Construction Program.)
* In coordination with the states, HHS finances health care services to
low-income individuals and families through the Medicaid program.
Medicaid improper payments are caused by medical review, eligibility
review, or data-processing review errors.[Footnote 14] In fiscal year
2002, HHS began a pilot to estimate improper payments for its Medicaid
program. The number of states voluntarily participating in the pilot
has increased each year, and in the second year of the pilot, fiscal
year 2003, 12 states participated. In the third year, fiscal year 2004,
24 states participated in the pilot. Because HHS had not fully
implemented a statistically valid methodology, the agency did not
report an improper payment estimate for the Medicaid program in its
fiscal year 2005 PAR. According to agency officials, HHS is in the
process of implementing a methodology for estimating payment error
rates for Medicaid in all states. HHS stated that it expects to be
fully compliant with the IPIA requirements for the Medicaid program by
fiscal year 2008. Other initiatives HHS is undertaking for the Medicaid
program are the hiring of additional staff to do prospective reviews of
state Medicaid operations and the Medicare/Medicaid data match program
designed to identify improper payments and areas in need of improved
payment accuracy. (See app. VI for more details on the Medicaid
program.)
We identified other improper payment pilot initiatives during our
review of agencies' fiscal year 2005 PARs. Specifically, HHS reported
that improper payment pilots are being conducted for three other state-
administered programs to assist HHS in its efforts to report a national
improper payment estimate in the future. For HHS's State Children's
Health Insurance Program (SCHIP), 15 states participated in a payment
accuracy measurement pilot in fiscal year 2004. The states performed a
combination of medical, eligibility, or data-processing reviews of
claims and applicable payments for the period October 1, 2003, to
December 31, 2003. Using a standard methodology, those states computed
a payment accuracy error rate for their programs. Based on these
results, HHS has adopted a national strategy using federal contractors
to obtain a national error rate for SCHIP with expected implementation
in fiscal year 2006. In fiscal year 2007, HHS expects to begin
measuring SCHIP error rates nationwide for its fee-for-service
component. HHS expects to report SCHIP error rates for its fee-for-
service, managed care, and eligibility components in its fiscal year
2008 PAR.
For HHS's Child Care and Development Fund (CCDF) Program, 11 states
participated in an improper payment pilot in fiscal year 2004 to assess
states' efforts to prevent and reduce improper payments. The states
worked with HHS to assess the adequacy of state systems, databases,
policy, and administrative structures. In fiscal year 2005, HHS
expanded pilot participation to 18 states. HHS also conducted an error
rate study in 4 states to assess those states' ability to verify
information received from clients during the initial eligibility
process or to establish eligibility correctly. In addition, HHS
conducted interviews in 5 other states to gather information about
improper payment activities. HHS reported that it will continue to work
with states during fiscal year 2006 to identify an appropriate strategy
for determining estimates of payment errors in the CCDF Program.
For HHS's Temporary Assistance for Needy Families (TANF) Program, one
state participated in a pilot to undergo a more in-depth review of TANF
expenditures as part of its single audit requirement.[Footnote 15] The
objective of the pilot was to explore the viability of estimating
improper payments in the single audit process. Using statistical
sampling, the auditors reviewed 208 cases to test controls. According
to HHS, the auditors reported an overall case error rate of 20 percent
and a payment error rate of 3.9 percent from their review of the 208
cases. In addition to this pilot, state-led initiatives involving the
TANF Program were also under way, as described below.
State Initiatives to Estimate Improper Payments:
During our review of survey responses, we also noted that 11 states, on
their own initiative, were estimating improper payments related to 5
separate programs for fiscal year 2003, fiscal year 2004, or both. For
example, 6 of the 11 states indicated in their survey responses that
they were estimating improper payments for HHS's TANF Program.[Footnote
16] Among the varying methods the 11 states used to estimate amounts,
error rates, or both were statistically representative samples of
payments and findings from states' single audits.[Footnote 17] Other
techniques respondents reported using included Food Stamp Program
quality control reviews to ascertain the accuracy of TANF payments,
which would be reasonable to do if the eligibility requirements of the
two programs were similar.
States Reported Using Various Techniques to Detect, Prevent, or Reduce
Improper Payments:
As part of their funds stewardship responsibilities for federal awards,
states are required to establish and maintain internal control designed
to provide reasonable assurance that funds are administered in
compliance with federal laws, regulations, and program requirements.
This includes maintaining accountability over assets and safeguarding
funds against loss from unauthorized use or disposition. To ensure
proper administration of federal funds, states reported using a variety
of prepayment and postpayment mechanisms. For example, states reported
the use of computer-related techniques to identify and prevent improper
payments as well as recovery audits to collect overpayments. In
addition, selected programs reported that federal incentives and
penalties are in place to help reduce improper payments. These types of
actions contribute to a strong internal control structure that helps
mitigate the risk and occurrence of improper payments.
Generally, improper payments result from a lack of or an inadequate
system of internal control, but some result from program design issues.
Our Standards for Internal Control in the Federal Government[Footnote
18] provides a road map for entities to establish control for all
aspects of their operations and a basis against which entities' control
structures can be evaluated. Also, our executive guide on strategies to
manage improper payments focuses on internal control standards as they
relate to reducing improper payments.[Footnote 19] The five components
of internal control--control environment, risk assessment, control
activities, information and communication, and monitoring--are defined
in the executive guide in relation to improper payments as follows:
* Control environment--creating a culture of accountability by
establishing a positive and supportive attitude toward improvement and
the achievement of established program outcomes.
* Risk assessment--analyzing program operations to determine if risks
exist and the nature and extent of the risks identified.
* Control activities--taking actions to address identified risk areas
and help ensure that management's decisions and plans are carried out
and program objectives are met.
* Information and communication--using and sharing relevant, reliable,
and timely financial and nonfinancial information in managing
activities related to improper payments.
* Monitoring--tracking improvement initiatives over time, and
identifying additional actions needed to further improve program
efficiency and effectiveness.
For this engagement, we focused on two of these internal control
components--risk assessments and control activities, which are
discussed in more detail in the following sections.
States Frequently Use Risk Assessments and Computer-Related Techniques
to Prevent or Detect Improper Payments:
All states except 1 acknowledged using computer-related techniques to
prevent or detect improper payments, while 21 states reported having
performed some type of statewide assessments to determine what programs
are at risk of improper payments. Strong systems of internal control
provide reasonable assurance that programs are operating as intended
and are achieving expected outcomes. A key step in the process of
gaining this assurance is conducting a risk assessment, an activity
that entails a comprehensive review and analysis of program operations
to determine where risks exist and what those risks are, and then
measuring of the potential or actual impact of those risks on program
operations. In performing a risk assessment, management should consider
all significant interactions between the entity and other parties, as
well as all internal factors at both the organizationwide and program
levels.
IPIA requires agencies to review all of their programs to identify
those that may be susceptible to significant improper payments. Since
the programs in our review were state administered, we asked the states
if they performed statewide reviews to assess if their programs may be
at risk of improper payments. Twenty-one states responded that they had
performed some type of statewide assessment of their programs. Some of
the states' risk assessment processes included internal control
assessments, which were generally self-assessments performed by the
states' program agencies and entities. Two states noted that these self-
assessments can be used as a tool by state auditors to evaluate
weaknesses or to plan work to be performed. Regular evaluation of
internal control systems is statutorily required by at least 2 states.
Other risk assessment methods states reported using included single
audits and other audits or reviews performed by state auditors or by
state agencies.
Survey respondents also cited using control activities, such as
computer-related techniques, to aid in the detection and prevention of
improper payments. Computer-related techniques play a significant role
not only in identifying improper payments, but also in providing data
on why these payments were made and, in turn, highlighting areas that
need strengthened prevention controls. The adoption of technology
allows states to have effective detection techniques to quickly
identify and recover improper payments. Data sharing, data mining,
smart technology, data warehousing, and other techniques are powerful
internal control tools that provide more useful and timely access to
information. The use of these techniques can achieve potentially
significant savings by identifying client-related reporting errors and
misinformation during the eligibility determination process--before
payments are made--or by detecting improper payments that have been
made. Fifty of the 51 states representing 21 different programs
reported in their surveys that they used computer-related techniques to
prevent or detect improper payments. Table 1 shows the number of
programs that reported using each technique.
Table 1: Program Use of Computer-Related Techniques:
1;
Program: Abandoned Mine Land Reclamation Program;
Fraud detection[A]: 1;
Data matching[B]: 1;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
2;
Program: Airport Improvement Program;
Fraud detection[A]: 0;
Data matching[B]: 1;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
3;
Program: Appalachian Development Highway System;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 0;
Other techniques[F]: 1.
4;
Program: Child Care and Development Block Grant;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 1;
Smart technology[D]: 0;
Data warehouse[E]: 0;
Other techniques[F]: 1.
5;
Program: Child Care and Development Fund;
Fraud detection[A]: 1;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 0;
Other techniques[F]: 1.
6;
Program: Capitalization Grants for Drinking Water State Revolving
Funds;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 0;
Other techniques[F]: 1.
7;
Program: Emergency Preparedness Funding;
Fraud detection[A]: 1;
Data matching[B]: 1;
Data mining[C]: 1;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
8;
Program: Food Stamp Program;
Fraud detection[A]: 18;
Data matching[B]: 13;
Data mining[C]: 13;
Smart technology[D]: 1;
Data warehouse[E]: 16;
Other techniques[F]: 12.
9;
Program: Foster Care Title IV-E;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 1.
10;
Program: Highway Planning and Construction;
Fraud detection[A]: 10;
Data matching[B]: 6;
Data mining[C]: 9;
Smart technology[D]: 1;
Data warehouse[E]: 19;
Other techniques[F]: 12.
11;
Program: Home Investment Partnerships Program;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 1;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
12;
Program: Medicaid;
Fraud detection[A]: 35;
Data matching[B]: 43;
Data mining[C]: 42;
Smart technology[D]: 16;
Data warehouse[E]: 43;
Other techniques[F]: 23.
13;
Program: National School Lunch Program;
Fraud detection[A]: 1;
Data matching[B]: 1;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 3;
Other techniques[F]: 2.
14;
Program: Special Education State Grants;
Fraud detection[A]: 1;
Data matching[B]: 1;
Data mining[C]: 1;
Smart technology[D]: 0;
Data warehouse[E]: 5;
Other techniques[F]: 2.
15;
Program: Special Supplemental Nutrition Program for Women, Infants, and
Children;
Fraud detection[A]: 1;
Data matching[B]: 1;
Data mining[C]: 1;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
16;
Program: Temporary Assistance for Needy Families;
Fraud detection[A]: 13;
Data matching[B]: 9;
Data mining[C]: 9;
Smart technology[D]: 2;
Data warehouse[E]: 12;
Other techniques[F]: 7.
17;
Program: Technology Transfer;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
18;
Program: Title I Grants to Local Educational Agencies;
Fraud detection[A]: 3;
Data matching[B]: 3;
Data mining[C]: 3;
Smart technology[D]: 0;
Data warehouse[E]: 7;
Other techniques[F]: 3.
19;
Program: Improving Teacher Quality State Grants;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 1;
Other techniques[F]: 0.
20;
Program: Unemployment Insurance;
Fraud detection[A]: 21;
Data matching[B]: 9;
Data mining[C]: 9;
Smart technology[D]: 2;
Data warehouse[E]: 9;
Other techniques[F]: 6.
21;
Program: Federal Transit Formula Grants;
Fraud detection[A]: 0;
Data matching[B]: 0;
Data mining[C]: 0;
Smart technology[D]: 0;
Data warehouse[E]: 0;
Other techniques[F]: 1.
Total;
Fraud detection[A]: 106;
Data matching[B]: 89;
Data mining[C]: 90;
Smart technology[D]: 22;
Data warehouse[E]: 122;
Other techniques[F]: 73.
Source: GAO analysis.
[A] Fraud systems. Help detect fraud and abuse in programs.
[B] Data matching. The process in which information from one source is
compared with information from another to identify any inconsistencies.
[C] Data mining. Offers a tool to review and analyze diverse data for
relationships that have not previously been discovered. Applying data
mining to a data warehouse allows an organization to efficiently query
the system to identify questionable activities.
[D] Smart technology. Software that analyzes patterns in claim data and
feeds the information back into the system to identify new patterns.
[E] Data warehouse. Stores historical and current data and consist of
tables of information that are logically grouped together. The
warehouse allows program and financial data from different
nonintegrated systems throughout an organization to be captured and
placed in a single database where users can query the system for
information.
[F] Other computer-related techniques. Various.
[End of table]
As table 1 shows, for the state programs that reported using a computer-
related technique, 106 state program administrators reported using some
sort of fraud detection system. One example is the Transportation
Software Management Solution, a fraud detection system used by several
states for the Highway Planning and Construction Program. This software
contains a Bid Analysis Management System that allows highway agencies
to analyze bids for collusion. Also, a limited number of states in our
survey reported using smart technology. For example, the Medicaid
Fraud, Abuse and Detection System is designed to structure, store,
retrieve, and analyze management information. It has the ability to
detect fraud patterns, and it works with the Medicaid Management
Information System, which contains a data warehouse that can be queried
for information to be used in a variety of analyses. Other techniques
include one state's use of a Web-based system that allows National
School Lunch Program participants to enter monthly claims by site.
System checks are in place to ensure that sites do not overclaim meals
based on days served and eligible students.
States Have Implemented Recovery Auditing Efforts:
Recovery auditing is another method that states can use to recoup
detected improper payments. Recovery auditing focuses on the
identification of erroneous invoices, discounts offered but not
received, improper late payment penalties, incorrect shipping costs,
and multiple payments for single invoices. Recovery auditing can be
conducted in-house or by recovery audit firms.
Section 831 of the National Defense Authorization Act for Fiscal Year
2002[Footnote 20] contains a provision that requires all executive
branch agencies entering into contracts with a total value exceeding
$500 million in a fiscal year to have cost-effective programs for
identifying errors in paying contractors and for recovering amounts
erroneously paid. The legislation further states that a required
element of such a program is the use of recovery audits and recovery
activities. The law authorizes federal agencies to retain recovered
funds to cover in-house administrative costs as well as to pay
contractors, such as collection agencies. OMB guidance[Footnote 21]
suggests that federal agencies awarding grants may extend their
recovery audit programs to cover significant contract activity by grant
recipients (e.g., states). States may engage in their own recovery
audit programs.
As shown in table 2, based on our review of survey responses, 15 states
reported conducting recovery audits in fiscal year 2003, fiscal year
2004, or both. In fiscal year 2003, states reported recovering over
$180 million, compared to $155 million for fiscal year 2004.
Table 2: Amount of Improper Payments Collected through State Recovery
Auditing Efforts:
State: Delaware;
Fiscal year 2003: $0[A];
Fiscal year 2004: $66,397.
State: District of Columbia;
Fiscal year 2003: $13,057,400;
Fiscal year 2004: $15,561,561.
State: Florida;
Fiscal year 2003: $44,354,018;
Fiscal year 2004: $45,142,905.
State: Idaho;
Fiscal year 2003: $10,501,900;
Fiscal year 2004: $10,535,500.
State: Michigan;
Fiscal year 2003: $15,865,807;
Fiscal year 2004: $11,804,269.
State: New Jersey;
Fiscal year 2003: $73,939;
Fiscal year 2004: $37,356.
State: New York;
Fiscal year 2003: $31,656,087;
Fiscal year 2004: $28,693,436.
State: Ohio;
Fiscal year 2003: $21,517,996;
Fiscal year 2004: $14,386,026.
State: Utah;
Fiscal year 2003: $71,285;
Fiscal year 2004: $189,107.
State: Virginia;
Fiscal year 2003: $12,730,919;
Fiscal year 2004: $7,495,281.
State: West Virginia;
Fiscal year 2003: $30,380,716;
Fiscal year 2004: $21,532,950.
State: Total recovered[B];
Fiscal year 2003: $180,210,067;
Fiscal year 2004: $155,444,788.
Source: GAO analysis.
[A] Did not perform a recovery audit in fiscal year 2003.
[B] We noted four additional states--Colorado, Connecticut, Kentucky,
and Tennessee--that performed recovery auditing in fiscal year 2003 or
fiscal year 2004; however, the respondents did not report an amount for
our survey because the information is reported at the state agency
level and not reported in aggregate at the statewide level.
[End of table]
In survey responses, states reported using either outside contractors
to perform recovery audits or establishing in-house fraud and detection
units to recover improperly paid amounts. One state noted that it
passed legislation requiring the use of recovery auditors in its state
agencies. In June 2005, Texas enacted legislation that directs the
state's Comptroller of Public Accounts to contract to conduct recovery
audits of payments made by state agencies to vendors and to recommend
improved state agency accounting operations.[Footnote 22] The law
requires state entities with more than $100 million in biennial
expenditures to undertake annual recovery audits.[Footnote 23] The
state expects to recover up to $4.5 million annually starting in state
fiscal year 2007.[Footnote 24]
Few State-Administered Programs Receive Incentives or Penalties
regarding Improper Payments:
Viewed broadly, agencies have applied limited incentives and penalties
for encouraging improved state administration to reduce improper
payments. Incentives and penalties can be helpful to create management
reform and to ensure adherence to performance standards. The IPIA
implementing guidance requires that each federal agency report on steps
it has taken to ensure that agency managers are held accountable for
reducing and recovering improper payments. When a culture of
accountability over improper payments is instilled in an organization,
everyone in the organization, including the managers and day-to-day
program operators, have an incentive to reduce fraud and errors.
Transparency, through public communication of performance results, also
acts as an incentive for agencies to be vigilant in their efforts to
address the wasteful spending that results from lapses in controls that
lead to improper payments.
In the survey, we asked the state program administrators to identify
any incentives they have received from the federal government to
encourage them to reduce improper payments. We also asked them to
identify any penalties they have received from the federal government
for not doing so. Thirty-two states reported incentives such as
enhanced funding and reduced reporting requirements for 5 of the 25
major programs. Most incentives were related to the Food Stamp Program,
largely because of a statutory requirement that USDA assess penalties
and provide financial incentives to the states. As we previously
reported on the Food Stamp Program,[Footnote 25] the administration of
the quality control process and its system of performance bonuses and
sanctions is a large motivator of program behavior and has assisted in
increasing payment accuracy. Examples of other incentives identified by
the state programs included reduced reporting requirements for benefit
recipients and additional funding received for a fraud and abuse
detection system.
Penalties such as decreased funding, increased reporting, and client
sanctions were reported by 17 states for four different programs. As
with incentives, most of the penalties identified related to the Food
Stamp Program. States can get approval from USDA to reinvest portions
of their penalties toward corrective actions to reduce the error rate
as opposed to USDA recovering the penalty from the state; thus the
distinction between incentives and penalties is somewhat blurred. Our
survey results showed that some states believed that being able to
reinvest a portion of their food stamp penalty toward corrective action
plans to improve payment accuracy was actually an incentive, while
other states considered it a penalty. For another program, one state
noted in its survey response that it was penalized by the federal
government for not applying applicable reductions to TANF beneficiaries
for noncompliance with child support enforcement regulations. In lieu
of paying a penalty of over $1 million, the state submitted a
corrective action plan to address the problems.
Certain states perceive limitations in their ability to adequately
address improper payments. For example, 37 states reported in their
survey responses that federal legislative and program design barriers
hinder their ability to detect, prevent, and reduce improper payments
for one or more programs. Legislative barriers relate to an agency's
ability to take actions to reduce improper payments. Program design
barriers relate to the complexity and variety of programs.
From our review of survey responses, several state program officials,
representing multiple programs, reported that they encountered
legislative barriers related to due process. Specifically, states are
not permitted to stop or adjust payments until the due process hearing
or appeals processes are complete, even though they know the payment is
improper. For example, one state reported that it has a state superior
court ruling that requires paying UI benefits conditionally under
certain circumstances, and that the recovery of the paid benefits can
only take place once the courts have determined the payments were
incorrect. Another state program response said that lack of authority
to mandate the submission of Social Security numbers for those applying
for benefits was a barrier that limited the ability to identify and
prevent improper payments. Additionally, 23 state programs identified
statutory restrictions over the use of certain data as a barrier to
improved accuracy. For example, three state programs noted that because
of security policies, they were restricted from accessing and using
information from the Internal Revenue Service.
Program design barriers have also contributed to states' inability to
reduce improper payments. Generally, states receive broad statutory and
regulatory program guidelines from the responsible federal agency.
States then issue state-specific guidelines to manage day-to-day
operations, which may vary among the states. A few survey respondents
indicated that inconsistent requirements between programs hindered
their ability to reduce improper payments. For example, four state
programs noted that efforts to manage improper payments are hindered
because of the different eligibility requirements among the federal
programs that they administer. The survey responses of the state
programs also indicated that they encountered resource barriers, such
as lack of funding for additional personnel or information technology.
For example, one state program responded that the lack of funding
needed to identify eligible beneficiaries through data matching was a
barrier.
Federal Action Needed to Help States Report Improper Payment
Information:
Minimizing improper payments is often most efficiently and effectively
achieved through the exchange of relevant, reliable, and timely
information between individuals and units within an organization and
with external entities that have oversight and monitoring
responsibilities. For state-administered programs, assistance from the
federal agencies and OMB may be needed in order for the states and
state programs to successfully assist the federal agencies in
implementing IPIA requirements. The types of communication and
information that may be necessary at both the state and federal levels
include (1) a determination of what information is needed by managers
to meet and support initiatives aimed at reducing improper payments;
(2) adequate means of communicating with, and obtaining information
from, external stakeholders that may have a significant impact on
improper payment initiatives, such as periodic meetings with oversight
bodies; and (3) working relationships with other organizations to share
information on improper payments.
Of the 227 state program surveys received, 100 identified one or more
areas where guidance or resources from the federal government would be
helpful. OMB can play an important role in encouraging and coordinating
efforts between the state programs and federal agencies. OMB, as part
of its responsibilities, develops and implements budget, program,
management, and regulatory policies. As such, OMB can set the tone at
the top by creating a general framework and setting expectations for
federal agencies in meeting the requirements of IPIA.
Selected States Want Federal Assistance:
Additional resources and guidance would be needed for increased state
involvement. As noted above, 100 state program officials[Footnote 26]
requested various tools cited as needed in their efforts to estimate
improper payments and to help the federal agencies in meeting various
IPIA requirements, including guidance on estimating improper payments,
additional funding for staffing and various projects, sharing of best
practices and available guidance, and guidance on performing risk
assessments. State programs also indicated that they would want an
opportunity to comment on any proposed regulations prior to
implementation that would require state actions to estimate and report
improper payment information.
In our survey, we asked the state program officials what types of
guidance and resources from the federal agencies or OMB would be
beneficial to better estimate improper payments. State program
officials identified one or more types of guidance or resources that
would be helpful to assist the federal agencies in meeting the
requirements of IPIA. We classified these responses into the following
areas:
* Guidance on estimating improper payments. Forty-four of the state
programs asked for general procedures, program-specific procedures, or
both for identifying and detecting improper payments, calculating error
rates, and establishing sampling methodologies. One state program
suggested that guidance related to training for detecting improper
payments and on how to design controls to facilitate improper payment
detection be made available.
* Additional funding. Forty-three of the state programs indicated a
need for additional funding to train and support the additional staff
levels they believe would be necessary to estimate improper payments.
Additional funding also was requested for automation projects. One
state requested enhanced funding to update its eligibility system to
include fraud detection. Another state requested additional funding for
developing an automated Quality Management System to capture data from
all levels of reviews and programs.
* Sharing of best practices and available guidance. Fifteen of the
state programs also expressed interest in the creation of groups to
discuss trends and best practices in improper payment-related areas,
while other states wanted general information on IPIA and the states'
roles.
* Assessing risk/risk assessment instruments. Thirteen of the state
programs requested procedures for assessing risk of improper payments,
including items to take into consideration when assessing their
programs for risk susceptibility.
* Recognition of state input. Seven of the state programs want an
opportunity to comment on any proposed regulations prior to
implementation of any requirements to estimate or report improper
payment information. For example, one state responded in its survey
that the state, in coordination with its cognizant federal agency,
should determine its own plans to detect improper payments.
Additionally, another state program inquired as to the purpose of
involving the states, particularly those that have had little
occurrence of audit findings, and another wanted clarification on what
sanctions would be assessed for those that identified improper
payments.
* Other guidance and resources. Forty-eight of the state programs
requested other types of guidance and resources relating to enhancing
the use of information technology, overcoming legislative barriers, and
establishing incentives and penalties for subrecipients, among others.
For example, one state program wanted the creation of a national
database to track the activity of medical providers that operate in
multiple states.
Actions Initiated at the Federal Level to Involve States in Measuring
Improper Payments:
OMB has continued to conduct its improper payments work through CFOC
and PCIE's Erroneous and Improper Payments Workgroup. The workgroup
periodically convenes to discuss and develop best practices and other
methods to reduce or eliminate, where possible, improper payments made
by federal government agencies. It has issued reports and other
products to CFOC/PCIE, reflecting workgroup deliberations and
determinations. OMB officials have told us that they have started to
draft a plan on developing and maintaining partnerships with states to
facilitate state's estimating and reporting information to the federal
agencies. For federal agencies' fiscal year 2005 PAR reporting, OMB
included a new requirement in Circular No. A-136, Financial Reporting
Requirements, that federal agencies were to report on their actions and
results at the grantee level. However, based on our review of selected
federal agencies' fiscal year 2005 PARs, reporting of fund stewardship
at the grantee level was limited.
The CFOC and PCIE Erroneous and Improper Payments Workgroup created the
Grants Subgroup in March 2004 to explore the feasibility of using
various tools to measure and report improper payments, including
evaluating currently available policies and guidance and modifying OMB
single audit guidance to fulfill IPIA reporting requirements.
Specifically, the Grants Subgroup's work focused on developing cost-
effective approaches for tracking improper payments at each stage of
the payment cycle, including (1) evaluating existing policies and
guidance that could be used to measure and report improper payments and
(2) examining the possibilities of measuring improper payments using
the audits conducted under the Single Audit Act of 1996, as amended;
OMB's Circular No. A-133 Single Audit Compliance Supplement; and the
Federal Single Audit Clearinghouse.
In March 2005, the subgroup issued a report[Footnote 27] reflecting the
results of its work. Specifically, the subgroup identified issues with
(1) the current structure and design of grant programs' distribution of
funding, which hinders determining a national payment error rate; (2)
little incentive for states to assist federal agencies with IPIA
reporting; (3) lack of funding to perform IPIA compliance activities;
and (4) awareness and commitment from all levels of management within
an agency to address the causes of improper payments. Further, in an
effort to foster working relationships among federal agencies and the
states, OMB has begun work to clarify state and federal roles in
estimating and reporting improper payments information and planning the
development of state partnerships for certain state-administered
programs.
Additionally, beginning with fiscal year 2005 PARs, OMB included three
reporting requirements for those agencies with grant-making programs:
(1) agency's accomplishments in the area of funds stewardship past the
primary recipient, (2) status of projects, and (3) results of any
reviews. Our preliminary review of these PARs showed that in general
agencies either did not report on their grant-making activities, did
not clearly identify grant programs, or did not address fund
stewardship beyond the primary recipient. However, we noted that some
agencies provided partial information on the three reporting
requirements. For example, eight agencies reported on the status of
their projects, including one that discussed linking grants management
and financial data to produce better information to ensure that
projects funded by grants achieve program objectives and grant
recipients are technically competent to carry out the work.
In November 2005, OMB issued draft revisions to its IPIA implementing
guidance. This implementing guidance, together with recovery auditing
guidance, is to be consolidated into future Parts I and II of Appendix
C to OMB Circular No. A-123, Management's Responsibility for Internal
Controls (Dec. 21, 2004). Among the proposed changes, OMB provides that
for state-administered programs, federal agencies may provide state-
level estimates either for all states or a sample of states to generate
a national improper payment rate for that program. Also, OMB proposes
to allow modifications to agency-specific compliance
supplements[Footnote 28] to enhance implementation of IPIA for federal
grant-making agencies, such as the ones discussed in this report. While
OMB has taken steps to begin addressing the complexities related to
reporting improper payment information for federally funded, state-
administered programs, additional enhancements could be made that
address how federal agencies define state-administered programs and the
methodology to be employed for generating a national estimate.
Specifically, we found that the proposed changes do not clearly define
the term state-administered programs. Without a clear definition, OMB
is at risk of receiving inconsistent improper payment reports because
agencies could define programs differently. In addition, we noted that
the draft guidance did not provide basic criteria, such as the nature
and extent of data and documentation that agencies should consider when
developing a plan or methodology to calculate a national improper
payment error rate for these state-administered programs.
Conclusions:
Federal agencies continue to make progress toward meeting the
requirements of IPIA, in response to the PMA and other key initiatives
to eliminate improper payments. However, measuring improper payments
and designing and implementing actions to reduce or eliminate them are
not simple tasks, particularly for grant programs that rely on quality
administration efforts at the state level. With budgetary pressures
rising across the federal government, agencies are under constant and
increasing pressure to do more with less. Preventing improper payments
and identifying and recouping those that occur become an even higher
priority in this environment. States have a fundamental responsibility
to ensure the proper administration of federal awards by using sound
management practices and maintaining internal controls to ensure
distribution of federal funding to subrecipients or beneficiaries in
accordance with federal and state laws and regulations. Given their
involvement in determining eligibility and distributing benefits,
states are in a position to assist federal agencies in reporting on
IPIA requirements. In fact, the success of several existing programs
and pilots in estimating improper payment rates indicates that such
efforts could logically be expanded. Communication, coordination, and
cooperation among federal agencies and the states will be critical
factors in estimating national improper payment rates and meeting IPIA
reporting requirements for state-administered programs.
Recommendations for Executive Action:
We are making four recommendations to help further the progress toward
meeting the goals of IPIA and determining states' role in assisting
federal agencies to report a national improper payment estimate on
federal programs. Specifically, we recommend that the Director, Office
of Management and Budget,
* revise IPIA policy guidance to clearly define state-administered
programs so that federal agencies can consistently identify all such
programs;
* expand IPIA guidance to provide criteria that federal agencies should
consider when developing a plan or methodology for estimating a
national improper payment estimate for state-administered programs,
such as criteria that address the nature and extent of data and
documentation needed from the states to calculate a national improper
payment estimate;
* require federal agencies to communicate, and make available to the
states, guidance on conducting risk assessments and estimating improper
payments for federally funded, state-administered programs; and:
* share ideas, concerns, and best practices with federal agencies and
states regarding improper payment reporting requirements for federally
funded, state-administered programs.
Agency Comments:
We received written comments on a draft of this report from OMB and
reprinted them in appendix VII. OMB agreed with our recommendations and
highlighted several initiatives under way to ensure that accurate
improper payment rates can be generated without creating undue cost and
burden on federal agencies or state partners that manage federally
funded programs. OMB also provided technical comments that we
incorporated, as appropriate.
We are sending copies of this report to the Director, Office of
Management and Budget; Secretaries of Agriculture, Health and Human
Services, Labor, and Transportation; appropriate congressional
committees; and other interested parties. We will also make copies
available to others upon request. In addition, the report is available
at no charge on GAO's Web site at [Hyperlink, http://www.gao.gov].
Please contact me at (202) 512-9095 or [Hyperlink, williamsm1@gao.gov]
if you have any questions about this report. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Major contributors to this report are
listed in appendix VIII.
Sincerely yours,
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
The objectives of this report were to determine (1) what actions are
being taken by states to assist federal agencies in estimating improper
payments; (2) what techniques, related to detecting, preventing, or
reducing improper payments, have states employed to ensure proper
administration of federal awards; and (3) what assistance can be
provided by the Office of Management and Budget (OMB) that state
program administrators would find helpful in supporting the respective
federal agencies with the implementation of the Improper Payments
Information Act of 2002 (IPIA).
To address each of these objectives, we:
* conducted a statewide survey in all 50 states and the District of
Columbia[Footnote 29] regarding actions to estimate improper payments
for state-administered federal programs for fiscal years 2003 and 2004,
* conducted a program-specific survey of the major programs in each of
the states,
* performed site visits to selected states,
* conducted interviews with federal and state officials, and:
* reviewed federal agencies' fiscal year 2005 performance and
accountability reports (PAR) and prior GAO and office of inspector
general (OIG) reports.
More detailed information on each of these aspects of our research is
presented in the following sections. We conducted our work from April
2005 through December 2005 in accordance with generally accepted
government auditing standards.
Survey Development and Implementation:
The surveys were developed based on IPIA, the National Defense
Reauthorization Act for Fiscal Year 2002, and our executive guide on
managing improper payments,[Footnote 30] and included questions about:
* state-issued policies or guidance on internal controls or on
estimating improper payments;
* statewide risk assessments for improper payments;
* state recovery auditing efforts;
* state program efforts to prevent, detect, and reduce improper
payments;
* state program participation in improper payment pilots; and:
* additional assistance needed by state programs to support efforts in
measuring and reporting improper payments.
The surveys were pretested with state officials in two states.
Revisions to the survey were made based on comments received during the
pretests.
To determine the state programs that would receive the program-specific
survey, we designed a spreadsheet for each state containing its major
programs, which we defined as those programs for which federal funds
covered at least 60 percent of total state-administered expenditures.
To do this, we used the Federal Audit Clearinghouse single audit
database to identify a universe of federally funded, state-administered
programs for each state. We sorted the programs from largest to
smallest expenditure amount and identified the major programs in
decreasing order until we obtained, in aggregate, at least 60 percent
of the total federal portion of state-administered expenditures in each
state. We provided this spreadsheet to states so they could confirm it
with their state records. Table 3 lists the 25 major programs and the
number of states in which each major program was included. The number
of states identified for each major program ranged from 1 to 51.
Table 3: Number of States for Which Each of the 25 Programs Was Defined
as Major:
1; Major program name: Medicaid;
Number: 51.
2; Major program name: Highway Planning and Construction;
Number: 44.
3; Major program name: Food Stamp Program;
Number: 36.
4; Major program name: Temporary Assistance for Needy Families;
Number: 28.
5; Major program name: Unemployment Insurance;
Number: 26.
6; Major program name: Title I Grants to Local Educational Agencies;
Number: 15.
7; Major program name: Special Education State Grants;
Number: 10.
8; Major program name: National School Lunch Program;
Number: 5.
9; Major program name: Child Care and Development Block Grant;
Number: 4.
10; Major program name: Foster Care Title IV-E;
Number: 3.
11; Major program name: Home Investment Partnerships Program;
Number: 2.
12; Major program name: Capitalization Grants for Clean Water State
Revolving Funds;
Number: 2.
13; Major program name: Capitalization Grants for Drinking Water State
Revolving Funds;
Number: 2.
14; Major program name: Special Supplemental Nutrition Program for
Women, Infants, and Children;
Number: 1.
15; Major program name: Emergency Preparedness Funding;
Number: 1.
16; Major program name: Lower Income Housing Assistance Program Section
8 Moderate Rehabilitation;
Number: 1.
17; Major program name: Abandoned Mine Land Reclamation Program;
Number: 1.
18; Major program name: Airport Improvement Program;
Number: 1.
19; Major program name: Federal Transit Formula Grants;
Number: 1.
20; Major program name: Appalachian Development Highway System;
Number: 1.
21; Major program name: Technology Transfer;
Number: 1.
22; Major program name: Surveys, Studies, Investigations, and Special
Purpose Grants;
Number: 1.
23; Major program name: Improving Teacher Quality State Grants;
Number: 1.
24; Major program name: Child Support Enforcement;
Number: 1.
25; Major program name: Child Care and Development Fund;
Number: 1.
Major program name: Total programs;
Number: 240.
Source: GAO.
[End of table]
As shown in table 4, the number of major programs identified for each
state ranged from 1 to 12.
Table 4: Number of Major Programs in Each State:
1; State: Alabama;
Number of programs: 3.
2; State: Alaska;
Number of programs: 8.
3; State: Arizona;
Number of programs: 4.
4; State: Arkansas;
Number of programs: 3.
5; State: California;
Number of programs: 3.
6; State: Colorado;
Number of programs: 10.
7; State: Connecticut;
Number of programs: 3.
8; State: Delaware;
Number of programs: 12.
9; State: District of Columbia;
Number of programs: 4.
10; State: Florida;
Number of programs: 4.
11; State: Georgia;
Number of programs: 5.
12; State: Hawaii;
Number of programs: 5.
13; State: Idaho;
Number of programs: 3.
14; State: Illinois;
Number of programs: 3.
15; State: Indiana;
Number of programs: 3.
16; State: Iowa;
Number of programs: 8.
17; State: Kansas;
Number of programs: 7.
18; State: Kentucky;
Number of programs: 4.
19; State: Louisiana;
Number of programs: 3.
20; State: Maine;
Number of programs: 3.
21; State: Maryland;
Number of programs: 7.
22; State: Massachusetts;
Number of programs: 7.
23; State: Michigan;
Number of programs: 1.
24; State: Minnesota;
Number of programs: 3.
25; State: Mississippi;
Number of programs: 3.
26; State: Missouri;
Number of programs: 3.
27; State: Montana;
Number of programs: 6.
28; State: Nebraska;
Number of programs: 3.
29; State: Nevada;
Number of programs: 4.
30; State: New Hampshire;
Number of programs: 5.
31; State: New Jersey;
Number of programs: 3.
32; State: New Mexico;
Number of programs: 5.
33; State: New York;
Number of programs: 3.
34; State: North Carolina;
Number of programs: 4.
35; State: North Dakota;
Number of programs: 5.
36; State: Ohio;
Number of programs: 6.
37; State: Oklahoma;
Number of programs: 4.
38; State: Oregon;
Number of programs: 4.
39; State: Pennsylvania;
Number of programs: 3.
40; State: Rhode Island;
Number of programs: 4.
41; State: South Carolina;
Number of programs: 1.
42; State: South Dakota;
Number of programs: 6.
43; State: Tennessee;
Number of programs: 2.
44; State: Texas;
Number of programs: 4.
45; State: Utah;
Number of programs: 5.
46; State: Vermont;
Number of programs: 3.
47; State: Virginia;
Number of programs: 10.
48; State: Washington;
Number of programs: 7.
49; State: West Virginia;
Number of programs: 6.
50; State: Wisconsin;
Number of programs: 7.
51; State: Wyoming;
Number of programs: 8.
Total programs;
Number of programs: 240.
Source: GAO.
[End of table]
We e-mailed the surveys in June 2005 and followed up with subsequent
mailings and telephone communications. The collection of survey data
ended in October 2005 with a response rate of 98 percent for the
statewide surveys (50 of the 51 states) and a 95 percent response rate
for the program-specific surveys (227 of the 240 programs).
We conducted follow-up phone calls to clarify responses where there
appeared to be discrepancies; however, we did not independently verify
the responses or information obtained through the surveys.
Although no sampling errors were associated with our survey results,
the practical difficulties of conducting any survey may introduce
certain types of errors, commonly referred to as nonsampling errors.
For example, differences in how a particular question is interpreted or
differences in the sources of information that participants use to
respond can introduce unwanted variability into the survey results. We
included steps in both the data collection and data analysis stages to
reduce such nonsampling errors. Specifically, social science survey
specialists designed draft questionnaires, we pretested two versions of
the questionnaire, and we performed reviews to identify inconsistencies
and other indications of error prior to analysis of data. The data were
keyed and verified after data entry. We conducted our survey work from
June 2005 through December 2005.
Site Visits:
We visited two states and interviewed state agency officials and other
relevant parties about initiatives in place to estimate improper
payments for the Highway Planning and Construction, Medicaid, and
Unemployment Insurance (UI) programs. The two states were selected
based on our knowledge of actions under way for programs in Tennessee
and Texas. We went to Tennessee to obtain information about the
Department of Transportation's (DOT) implementation of a pilot project
to estimate improper payments related to the Highway Planning and
Construction Program. The pilot was the first that DOT's Federal
Highway Administration had conducted to estimate improper payments in a
state and covered two construction projects.
We went to Texas to obtain information about the Department of Health
and Human Services's (HHS) Medicaid program and the Department of
Labor's (Labor) UI Program. One reason for selecting Texas was that
HHS's Center for Medicare and Medicaid Services had identified Texas as
having a leadership role in estimating improper payments for its
Medicaid program. In addition, Texas was one of three states
participating in a new pilot project organized by Labor to begin data-
matching work using the National Directory of New Hires. More
information about these states' efforts in these three programs is
provided in appendixes IV, V, and VI. Detailed information regarding
the Department of Agriculture's Food Stamp Program and its efforts in
estimating and reporting improper payments is presented in appendix
III. Improper payment estimates and references from agencies' PARs are
used for background purposes. We did not assess the reliability of
these data.
[End of section]
Appendix II: States and Programs Included in Our Review:
State: 1: Alabama;
Program: 1: Medicaid.
Program: 2: Highway Planning and Construction.
Program: 3: Food Stamp Program.
State: 2: Alaska;
Program: 4;
Program: Medicaid.
Program: 5: Highway Planning and Construction.
Program: 6: Airport Improvement Program.
Program: 7: Food Stamp Program.
Program: 8: Unemployment Insurance.
Program: 9: Temporary Assistance for Needy Families.
Program: 10: Surveys, Studies, Investigations, and Special Purpose
Grants.
Program: 11: Child Care and Development Block Grant.
State: 3: Arizona;
Program: 12: Medicaid.
Program: 13: Unemployment Insurance.
Program: 14: Food Stamp Program.
Program: 15: Highway Planning and Construction.
State: 4: Arkansas;
Program: 16: Medicaid.
Program: 17: Highway Planning and Construction.
Program: 18: Food Stamp Program.
State: 5: California;
Program: 19: Medicaid.
Program: 20;
Program: Unemployment Insurance.
Program: 21;
Program: Temporary Assistance for Needy Families.
State: 6: Colorado;
Program: 22: Medicaid.
Program: 23: Highway Planning and Construction.
Program: 24: Food Stamp Program.
Program: 25: Temporary Assistance for Needy Families.
Program: 26: Title I Grants to Local Educational Agencies.
Program: 27: Special Education State Grants.
Program: 28: National School Lunch Program.
Program: 29: Foster Care Title IV-E.
Program: 30: Special Supplemental Nutrition Program for Women, Infants,
and Children.
Program: 31: Technology Transfer.
State: 7: Connecticut;
Program: 32: Medicaid.
Program: 33: Unemployment Insurance.
Program: 34: Highway Planning and Construction.
State: 8: Delaware;
Program: 35: Medicaid.
Program: 36: Highway Planning and Construction.
Program: 37: Food Stamp Program.
Program: 38: Temporary Assistance for Needy Families.
Program: 39: Title I Grants to Local Educational Agencies.
Program: 40: Special Education State Grants.
Program: 41: Lower Income Housing Assistance Program Section 8 Moderate
Rehabilitation.
Program: 42: Child Care and Development Fund.
Program: 43: Improving Teacher Quality State Grants.
Program: 44: National School Lunch Program.
Program: 45: Child Support Enforcement.
Program: 46: Federal Transit Formula Grants.
State: 9: District of Columbia;
Program: 47: Medicaid.
Program: 48: Highway Planning and Construction.
Program: 49: Emergency Preparedness Funding.
Program: 50: Temporary Assistance for Needy Families.
State: 10: Florida;
Program: 51: Medicaid.
Program: 52: Highway Planning and Construction.
Program: 53: Food Stamp Program.
Program: 54: Temporary Assistance for Needy Families.
State: 11: Georgia;
Program: 55: Medicaid.
Program: 56: Highway Planning and Construction.
Program: 57: Food Stamp Program.
Program: 58: Temporary Assistance for Needy Families.
Program: 59: National School Lunch Program.
State: 12: Hawaii;
Program: 60: Medicaid.
Program: 61: Food Stamp Program.
Program: 62: Highway Planning and Construction.
Program: 63: Temporary Assistance for Needy Families.
Program: 64: Capitalization Grants for Clean Water State Revolving
Funds.
State: 13: Idaho;
Program: 65: Medicaid.
Program: 66: Unemployment Insurance.
Program: 67: Highway Planning and Construction.
State: 14: Illinois;
Program: 68: Medicaid.
Program: 69: Unemployment Insurance.
Program: 70: Food Stamp Program.
State: 15: Indiana;
Program: 71: Medicaid.
Program: 72: Unemployment Insurance.
Program: 73: Highway Planning and Construction.
State: 16: Iowa;
Program: 74: Medicaid.
Program: 75: Highway Planning and Construction.
Program: 76: Food Stamp Program.
Program: 77: Temporary Assistance for Needy Families.
Program: 78: Special Education State Grants.
Program: 79: Home Investment Partnerships Program.
Program: 80: Title I Grants to Local Educational Agencies.
Program: 81: National School Lunch Program.
State: 17: Kansas;
Program: 82: Medicaid.
Program: 83: Highway Planning and Construction.
Program: 84: Food Stamp Program.
Program: 85: Unemployment Insurance.
Program: 86: Temporary Assistance for Needy Families.
Program: 87: Title I Grants to Local Educational Agencies.
Program: 88: Special Education State Grants.
State: 18: Kentucky;
Program: 89: Medicaid[A].
Program: 90: Unemployment Insurance.
Program: 91: Highway Planning and Construction.
Program: 92: Food Stamp Program.
State: 19: Louisiana;
Program: 93: Medicaid.
Program: 94: Food Stamp Program.
Program: 95: Highway Planning and Construction.
State: 20: Maine;
Program: 96: Medicaid.
Program: 97: Highway Planning and Construction.
Program: 98: Food Stamp Program.
State: 21: Maryland;
Program: 99: Medicaid.
Program: 100: Highway Planning and Construction.
Program: 101: Food Stamp Program.
Program: 102: Temporary Assistance for Needy Families.
Program: 103: Unemployment Insurance.
Program: 104: Title I Grants to Local Educational Agencies.
Program: 105: Foster Care Title IV-E.
State: 22: Massachusetts;
Program: 106: Medicaid.
Program: 107: Unemployment Insurance.
Program: 108: Highway Planning and Construction.
Program: 109: Temporary Assistance for Needy Families.
Program: 110: Food Stamp Program.
Program: 111: Title I Grants to Local Educational Agencies.
Program: 112: Special Education State Grants.
State: 23: Michigan;
Program: 113: Medicaid.
State: 24: Minnesota;
Program: 114: Medicaid.
Program: 115: Unemployment Insurance.
Program: 116: Highway Planning and Construction.
State: 25: Mississippi;
Program: 117: Medicaid.
Program: 118: Highway Planning and Construction.
Program: 119: Food Stamp Program.
State: 26: Missouri;
Program: 120: Medicaid[A].
Program: 121: Unemployment Insurance[A].
Program: 122: Highway Planning and Construction[A].
State: 27: Montana;
Program: 123: Medicaid.
Program: 124: Highway Planning and Construction.
Program: 125: Food Stamp Program.
Program: 126: Temporary Assistance for Needy Families.
Program: 127: Title I Grants to Local Educational Agencies.
Program: 128: Special Education State Grants.
State: 28: Nebraska;
Program: 129: Medicaid.
Program: 130: Highway Planning and Construction.
Program: 131: Unemployment Insurance.
State: 29: Nevada;
Program: 132: Medicaid.
Program: 133: Highway Planning and Construction.
Program: 134: Food Stamp Program.
Program: 135: Temporary Assistance for Needy Families.
State: 30: New Hampshire;
Program: 136: Medicaid.
Program: 137: Highway Planning and Construction[A].
Program: 138: Temporary Assistance for Needy Families.
Program: 139: Food Stamp Program.
Program: 140: Unemployment Insurance.
State: 31: New Jersey;
Program: 141: Medicaid.
Program: 142: Highway Planning and Construction.
Program: 143: Temporary Assistance for Needy Families.
State: 32: New Mexico[A];
Program: 144: Medicaid[A].
Program: 145: Highway Planning and Construction.
Program: 146: Food Stamp Program[A].
Program: 147: Temporary Assistance for Needy Families[A].
Program: 148: Title I Grants to Local Educational Agencies[A].
State: 33: New York;
Program: 149: Medicaid.
Program: 150: Temporary Assistance for Needy Families.
Program: 151: Unemployment Insurance.
State: 34: North Carolina;
Program: 152: Medicaid.
Program: 153: Unemployment Insurance.
Program: 154: Highway Planning and Construction.
Program: 155: Food Stamp Program.
State: 35: North Dakota;
Program: 156: Medicaid.
Program: 157: Highway Planning and Construction.
Program: 158: Food Stamp Program.
Program: 159: Temporary Assistance for Needy Families.
Program: 160: Title I Grants to Local Educational Agencies.
State: 36: Ohio;
Program: 161: Medicaid.
Program: 162: Highway Planning and Construction.
Program: 163: Food Stamp Program.
Program: 164: Temporary Assistance for Needy Families.
Program: 165: Title I Grants to Local Educational Agencies.
Program: 166: Child Care and Development Block Grant.
State: 37: Oklahoma;
Program: 167: Medicaid.
Program: 168: Highway Planning and Construction.
Program: 169: Food Stamp Program.
Program: 170: Temporary Assistance for Needy Families.
State: 38: Oregon;
Program: 171: Medicaid.
Program: 172: Unemployment Insurance.
Program: 173: Food Stamp Program.
Program: 174: Highway Planning and Construction.
State: 39: Pennsylvania;
Program: 175: Medicaid.
Program: 176: Highway Planning and Construction.
Program: 177: Unemployment Insurance.
State: 40: Rhode Island;
Program: 178: Medicaid.
Program: 179: Unemployment Insurance.
Program: 180: Highway Planning and Construction.
Program: 181: Temporary Assistance for Needy Families.
State: 41: South Carolina;
Program: 182: Medicaid.
State: 42: South Dakota;
Program: 183: Medicaid.
Program: 184: Highway Planning and Construction.
Program: 185: Capitalization Grants for Clean Water State Revolving
Funds.
Program: 186: Food Stamp Program.
Program: 187: Home Investment Partnerships Program.
Program: 188: Capitalization Grants for Drinking Water State Revolving
Funds.
State: 43: Tennessee;
Program: 189: Medicaid.
Program: 190: Food Stamp Program.
State: 44: Texas;
Program: 191: Medicaid.
Program: 192: Highway Planning and Construction.
Program: 193: Food Stamp Program.
Program: 194: Title I Grants to Local Educational Agencies.
State: 45: Utah;
Program: 195: Medicaid.
Program: 196: Highway Planning and Construction.
Program: 197: Temporary Assistance for Needy Families.
Program: 198: Unemployment Insurance.
Program: 199: Food Stamp Program.
State: 46: Vermont;
Program: 200: Medicaid.
Program: 201: Highway Planning and Construction.
Program: 202: Unemployment Insurance.
State: 47: Virginia;
Program: 203: Medicaid.
Program: 204: Highway Planning and Construction.
Program: 205: Food Stamp Program.
Program: 206: Unemployment Insurance.
Program: 207: Special Education State Grants.
Program: 208: National School Lunch Program.
Program: 209: Title I Grants to Local Educational Agencies.
Program: 210: Temporary Assistance for Needy Families.
Program: 211: Foster Care Title IV-E.
Program: 212: Child Care and Development Block Grant.
State: 48: Washington;
Program: 213: Medicaid.
Program: 214: Unemployment Insurance.
Program: 215: Highway Planning and Construction.
Program: 216: Food Stamp Program.
Program: 217: Temporary Assistance for Needy Families[A].
Program: 218: Child Care and Development Block Grant[A].
Program: 219: Special Education State Grants.
State: 49: West Virginia;
Program: 220: Medicaid.
Program: 221: Highway Planning and Construction.
Program: 222: Food Stamp Program.
Program: 223: Appalachian Development Highway System.
Program: 224: Temporary Assistance for Needy Families.
Program: 225: Title I Grants to Local Educational Agencies.
State: 50: Wisconsin;
Program: 226: Medicaid.
Program: 227: Highway Planning and Construction.
Program: 228: Temporary Assistance for Needy Families.
Program: 229: Unemployment Insurance.
Program: 230: Food Stamp Program.
Program: 231: Title I Grants to Local Educational Agencies.
Program: 232: Special Education State Grants.
State: 51: Wyoming;
Program: 233: Medicaid.
Program: 234: Food Stamp Program[A].
Program: 235: Title I Grants to Local Educational Agencies.
Program: 236: Abandoned Mine Land Reclamation Program.
Program: 237: Temporary Assistance for Needy Families[A].
Program: 238: Unemployment Insurance.
Program: 239: Capitalization Grants for Drinking Water State Revolving
Funds.
Program: 240: Special Education State Grants.
Source: GAO.
[A] No survey received.
[End of table]
[End of section]
Appendix III: Food Stamp Quality Control System:
Overview of Program:
The Food Stamp Program is intended to help low-income individuals and
families obtain a more nutritious diet by supplementing their incomes
with benefits to purchase food. The Department of Agriculture's (USDA)
Food and Nutrition Service (FNS) administers the program in partnership
with the states. FNS pays the full cost of Food Stamp benefits and
shares the states' administrative costs and is responsible for
promulgating program regulations and ensuring that state officials
administer the program in compliance with program rules. States handle
day-to-day operation and management, including certifying eligibility
of participants, delivering the benefits, and monitoring recipients'
compliance. The states usually administer the program out of local
assistance offices that determine whether households meet the program's
eligibility requirements, calculate monthly benefits for qualified
households, and issue benefits to participants. The local assistance
offices often administer other benefit programs as well, including
Temporary Assistance for Needy Families (TANF), Medicaid, and child
care assistance.
To measure the accuracy of Food Stamp payments, FNS and the states have
an extensive quality control (QC) system from which the Food Stamp
Program payment error rate is developed. The QC system, established in
1970, reviews and measures the accuracy of household certifications
using a statistically valid methodology to calculate improper payment
estimates for the Food Stamp Program for all 50 states, Guam, the
Virgin Islands, and the District of Columbia. The system is mandated by
the Food Stamp Act, as amended, and further defined in program
regulations and agency guidance.[Footnote 31]
The QC process uses a systematic random sampling of Food Stamp Program
participants. State agencies select cases monthly that are reviewed to
determine the accuracy of the eligibility and benefit-level
determination. The review includes a client interview, verification of
all elements of eligibility, and the basis of issuance of food stamp
benefits. The states report the findings of all QC reviews to FNS. FNS
reviewers validate a sample of the states' reviews by conducting a
second review. The results of the federal validation and state findings
are used to calculate a final error rate for each state agency.
As reported in USDA's fiscal year 2005 PAR, the causes of improper
payments in the Food Stamp Program include client errors, such as
incomplete or inaccurate reporting of income, assets, or both by
participants at the time of certification or by not reporting
subsequent changes. Causes can also be provider based, such as errors
in determining eligibility or benefits by caseworkers or eligibility
worker delays in action or inaction on client-reported changes. In its
fiscal year 2005 PAR, USDA reported a national error rate of 5.88
percent, or $1.4 billion, for the Food Stamp Program. The estimate is
based on fiscal year 2004 data, the most current data available for
this measure.
Statistically valid state error rates are weighted annually to
determine a national average error rate for the Food Stamp Program.
Once the error rates are finalized, FNS compares each state's
performance with the national error rate and imposes penalties or
provides incentives according to specifications in the law.
Improper Payment Estimates:
OMB's implementing guidance requires that agencies report overpayments
and underpayments in their programs if the figures are available. USDA
reports these amounts in its PAR for the Food Stamp Program. Table 5
provides the overpayment and underpayment amount for each state. In
fiscal year 2003, overpayments ranged from $454,636 to $103,236,074
while underpayments ranged from $126,288 to $40,679,714. In fiscal year
2004, overpayments ranged from $756,935 to $94,118,074 and
underpayments ranged from $151,016 to $46,714,340.
Table 5: Food Stamp Improper Payment Amounts by State for Fiscal Years
2003 and 2004:
State: Alabama;
FY 2003 overpayment amount: $32,022,705;
FY 2003 underpayment amount: $5,313,811;
FY 2004 overpayment amount: $36,036,075;
FY 2004 underpayment amount: $5,023,521.
State: Alaska;
FY 2003 overpayment amount: $7,124,955;
FY 2003 underpayment amount: $1,998,142;
FY 2004 overpayment amount: $3,207,363;
FY 2004 underpayment amount: $1,275,217.
State: Arizona;
FY 2003 overpayment amount: $23,438,760;
FY 2003 underpayment amount: $5,623,312;
FY 2004 overpayment amount: $29,586,835;
FY 2004 underpayment amount: $8,205,724.
State: Arkansas;
FY 2003 overpayment amount: $10,712,762;
FY 2003 underpayment amount: $1,521,699;
FY 2004 overpayment amount: $14,118,057;
FY 2004 underpayment amount: $4,370,701.
State: California;
FY 2003 overpayment amount: $103,236,074;
FY 2003 underpayment amount: $40,679,714;
FY 2004 overpayment amount: $94,118,074;
FY 2004 underpayment amount: $31,836,981.
State: Colorado;
FY 2003 overpayment amount: $12,361,379;
FY 2003 underpayment amount: $2,683,720;
FY 2004 overpayment amount: $5,893,540;
FY 2004 underpayment amount: $1,517,650.
State: Connecticut;
FY 2003 overpayment amount: $11,572,762;
FY 2003 underpayment amount: $2,884,948;
FY 2004 overpayment amount: $7,150,599;
FY 2004 underpayment amount: $2,607,401.
State: Delaware;
FY 2003 overpayment amount: $1,945,107;
FY 2003 underpayment amount: $626,066;
FY 2004 overpayment amount: $2,425,654;
FY 2004 underpayment amount: $1,102,570.
State: District of Columbia;
FY 2003 overpayment amount: $6,380,065;
FY 2003 underpayment amount: $1,703,153;
FY 2004 overpayment amount: $4,631,618;
FY 2004 underpayment amount: $877,570.
State: Florida;
FY 2003 overpayment amount: $54,335,945;
FY 2003 underpayment amount: $24,006,609;
FY 2004 overpayment amount: $66,471,972;
FY 2004 underpayment amount: $11,670,652.
State: Georgia;
FY 2003 overpayment amount: $31,296,436;
FY 2003 underpayment amount: $9,075,967;
FY 2004 overpayment amount: $48,592,664;
FY 2004 underpayment amount: $8,776,242.
State: Hawaii;
FY 2003 overpayment amount: $5,388,605;
FY 2003 underpayment amount: $2,077,346;
FY 2004 overpayment amount: $5,237,425;
FY 2004 underpayment amount: $1,366,285.
State: Idaho;
FY 2003 overpayment amount: $6,049,789;
FY 2003 underpayment amount: $2,611,365;
FY 2004 overpayment amount: $5,576,573;
FY 2004 underpayment amount: $2,656,377.
State: Illinois;
FY 2003 overpayment amount: $43,162,302;
FY 2003 underpayment amount: $8,106,091;
FY 2004 overpayment amount: $56,449,466;
FY 2004 underpayment amount: $11,507,938.
State: Indiana;
FY 2003 overpayment amount: $38,405,811;
FY 2003 underpayment amount: $9,964,228;
FY 2004 overpayment amount: $23,903,276;
FY 2004 underpayment amount: $8,132,609.
State: Iowa;
FY 2003 overpayment amount: $6,163,775;
FY 2003 underpayment amount: $1,641,683;
FY 2004 overpayment amount: $8,781,450;
FY 2004 underpayment amount: $2,116,012.
State: Kansas;
FY 2003 overpayment amount: $11,287,114;
FY 2003 underpayment amount: $3,383,327;
FY 2004 overpayment amount: $6,573,509;
FY 2004 underpayment amount: $1,501,162.
State: Kentucky;
FY 2003 overpayment amount: $24,797,796;
FY 2003 underpayment amount: $5,932,022;
FY 2004 overpayment amount: $25,346,127;
FY 2004 underpayment amount: $5,210,339.
State: Louisiana;
FY 2003 overpayment amount: $30,220,286;
FY 2003 underpayment amount: $9,456,688;
FY 2004 overpayment amount: $27,819,108;
FY 2004 underpayment amount: $8,519,131.
State: Maine;
FY 2003 overpayment amount: $12,605,513;
FY 2003 underpayment amount: $3,883,391;
FY 2004 overpayment amount: $12,467,964;
FY 2004 underpayment amount: $2,848,225.
State: Maryland;
FY 2003 overpayment amount: $13,154,521;
FY 2003 underpayment amount: $5,421,102;
FY 2004 overpayment amount: $12,614,597;
FY 2004 underpayment amount: $4,099,744.
State: Massachusetts;
FY 2003 overpayment amount: $9,059,608;
FY 2003 underpayment amount: $3,603,542;
FY 2004 overpayment amount: $9,071,744;
FY 2004 underpayment amount: $5,418,693.
State: Michigan;
FY 2003 overpayment amount: $64,603,806;
FY 2003 underpayment amount: $22,317,679;
FY 2004 overpayment amount: $43,193,936;
FY 2004 underpayment amount: $21,238,512.
State: Minnesota;
FY 2003 overpayment amount: $13,604,820;
FY 2003 underpayment amount: $4,497,086;
FY 2004 overpayment amount: $12,399,691;
FY 2004 underpayment amount: $4,880,200.
State: Mississippi;
FY 2003 overpayment amount: $10,286,766;
FY 2003 underpayment amount: $3,350,738;
FY 2004 overpayment amount: $15,557,052;
FY 2004 underpayment amount: $5,703,049.
State: Missouri;
FY 2003 overpayment amount: $30,479,379;
FY 2003 underpayment amount: $7,832,690;
FY 2004 overpayment amount: $42,591,976;
FY 2004 underpayment amount: $6,634,264.
State: Montana;
FY 2003 overpayment amount: $3,392,350;
FY 2003 underpayment amount: $592,972;
FY 2004 overpayment amount: $2,843,188;
FY 2004 underpayment amount: $799,894.
State: Nebraska;
FY 2003 overpayment amount: $5,063,401;
FY 2003 underpayment amount: $1,402,035;
FY 2004 overpayment amount: $4,608,506;
FY 2004 underpayment amount: $1,478,200.
State: Nevada;
FY 2003 overpayment amount: $7,278,706;
FY 2003 underpayment amount: $2,016,855;
FY 2004 overpayment amount: $7,362,460;
FY 2004 underpayment amount: $1,625,478.
State: New Hampshire;
FY 2003 overpayment amount: $2,500,909;
FY 2003 underpayment amount: $498,586;
FY 2004 overpayment amount: $2,517,133;
FY 2004 underpayment amount: $574,847.
State: New Jersey;
FY 2003 overpayment amount: $6,200,425;
FY 2003 underpayment amount: $2,032,926;
FY 2004 overpayment amount: $7,663,778;
FY 2004 underpayment amount: $3,737,507.
State: New Mexico;
FY 2003 overpayment amount: $8,918,362;
FY 2003 underpayment amount: $2,385,570;
FY 2004 overpayment amount: $9,479,693;
FY 2004 underpayment amount: $2,674,317.
State: New York;
FY 2003 overpayment amount: $61,527,878;
FY 2003 underpayment amount: $37,050,848;
FY 2004 overpayment amount: $60,972,532;
FY 2004 underpayment amount: $46,714,340.
State: North Carolina;
FY 2003 overpayment amount: $25,429,487;
FY 2003 underpayment amount: $6,454,185;
FY 2004 overpayment amount: $16,269,128;
FY 2004 underpayment amount: $7,607,324.
State: North Dakota;
FY 2003 overpayment amount: $1,394,697;
FY 2003 underpayment amount: $381,706;
FY 2004 overpayment amount: $1,079,676;
FY 2004 underpayment amount: $588,182.
State: Ohio;
FY 2003 overpayment amount: $44,728,801;
FY 2003 underpayment amount: $13,357,127;
FY 2004 overpayment amount: $70,446,518;
FY 2004 underpayment amount: $14,735,232.
State: Oklahoma;
FY 2003 overpayment amount: $28,380,204;
FY 2003 underpayment amount: $4,168,229;
FY 2004 overpayment amount: $19,769,506;
FY 2004 underpayment amount: $3,699,324.
State: Oregon;
FY 2003 overpayment amount: $40,765,571;
FY 2003 underpayment amount: $8,762,693;
FY 2004 overpayment amount: $25,082,127;
FY 2004 underpayment amount: $7,599,386.
State: Pennsylvania;
FY 2003 overpayment amount: $49,012,613;
FY 2003 underpayment amount: $15,473,533;
FY 2004 overpayment amount: $26,691,625;
FY 2004 underpayment amount: $10,639,319.
State: Rhode Island;
FY 2003 overpayment amount: $4,843,564;
FY 2003 underpayment amount: $1,307,212;
FY 2004 overpayment amount: $7,686,034;
FY 2004 underpayment amount: $2,096,191.
State: South Carolina;
FY 2003 overpayment amount: $18,709,605;
FY 2003 underpayment amount: $3,147,825;
FY 2004 overpayment amount: $27,716,610;
FY 2004 underpayment amount: $3,658,793.
State: South Dakota;
FY 2003 overpayment amount: $454,636;
FY 2003 underpayment amount: $126,288;
FY 2004 overpayment amount: $911,490;
FY 2004 underpayment amount: $151,016.
State: Tennessee;
FY 2003 overpayment amount: $44,246,038;
FY 2003 underpayment amount: $7,723,207;
FY 2004 overpayment amount: $40,427,562;
FY 2004 underpayment amount: $13,881,753.
State: Texas;
FY 2003 overpayment amount: $41,942,991;
FY 2003 underpayment amount: $19,937,027;
FY 2004 overpayment amount: $65,743,403;
FY 2004 underpayment amount: $29,296,183.
State: Utah;
FY 2003 overpayment amount: $3,474,989;
FY 2003 underpayment amount: $1,635,289;
FY 2004 overpayment amount: $3,361,379;
FY 2004 underpayment amount: $1,268,213.
State: Vermont;
FY 2003 overpayment amount: $2,630,295;
FY 2003 underpayment amount: $575,730;
FY 2004 overpayment amount: $1,631,109;
FY 2004 underpayment amount: $424,810.
State: Virginia;
FY 2003 overpayment amount: $15,124,786;
FY 2003 underpayment amount: $4,870,694;
FY 2004 overpayment amount: $24,760,618;
FY 2004 underpayment amount: $6,618,704.
State: Washington;
FY 2003 overpayment amount: $19,798,026;
FY 2003 underpayment amount: $4,969,226;
FY 2004 overpayment amount: $26,770,075;
FY 2004 underpayment amount: $7,921,757.
State: West Virginia;
FY 2003 overpayment amount: $10,371,097;
FY 2003 underpayment amount: $3,068,116;
FY 2004 overpayment amount: $12,721,487;
FY 2004 underpayment amount: $2,548,932.
State: Wisconsin;
FY 2003 overpayment amount: $15,828,776;
FY 2003 underpayment amount: $5,929,954;
FY 2004 overpayment amount: $13,040,841;
FY 2004 underpayment amount: $4,876,844.
State: Wyoming;
FY 2003 overpayment amount: $728,845;
FY 2003 underpayment amount: $288,651;
FY 2004 overpayment amount: $756,935;
FY 2004 underpayment amount: $414,691.
State: Total;
FY 2003 overpayment amount: $1,076,443,893;
FY 2003 underpayment amount: $338,352,603;
FY 2004 overpayment amount: $1,100,129,758;
FY 2004 underpayment amount: $344,728,006.
Source: USDA FNS.
[End of table]
State and Federal Improper Payment Initiatives Under Way:
Since fiscal year 1999, the combined Food Stamp error rate has
continued to decline. Figure 2 displays the error rates for the 6-year
period from fiscal years 1999 to 2004.
Figure 2: Food Stamp National Payment Error Rate, Fiscal Years 1999-
2004:
[See PDF for image]
[End of figure]
Actions taken by both the states and FNS contributed to the declining
error rates. For example, the state of Arizona has completed a
statewide implementation of a fingerprint imaging system. The state is
using the system as a means of positive identification of welfare
applicants and clients to ensure that participants do not use false
identities to receive benefits to which they are not entitled; the
system is also used in the eligibility determination process. The state
reported that cost avoidance savings resulted from welfare fraud
reduction achieved through the identification and prevention of
duplicate enrollments in the Food Stamp and TANF programs.
Recent initiatives reported in USDA's fiscal year 2005 PAR include
FNS's nationwide implementation of an electronic benefit transfer (EBT)
system for the delivery of food stamp benefits. EBT recipients use a
plastic card, much like debit cards, to pay for their food at
authorized retail stores. Funds are transferred from a Food Stamp
benefits account to a retailer's account. With EBT cards, food stamp
customers pay for groceries without any paper coupons changing hands.
By eliminating paper coupons, EBT creates an electronic record for each
transaction that precludes certain types of fraudulent claims and makes
other attempted frauds easier to detect.
Other FNS efforts include Partner Web, a Web-based system to facilitate
communication and information exchange between USDA and its nutrition
assistance program partners. Another initiative, the National Payment
Accuracy Workgroup, consists of representatives from USDA headquarters
and regional offices who meet to discuss best practice methods and
strategies. The practices the states are promoting include:
* preparing reports detailing causes and sources of errors for the
local offices and publishing and distributing monthly error rates for
all local offices;
* transmitting the results of statewide error review panels on the
source and causes of errors to local offices, along with suggested
corrective actions;
* sponsoring statewide QC meetings and state best practices conferences
for local offices to discuss error rate actions taken and common
problems; and:
* sponsoring local office participation in FNS regional conferences.
Table 6 summarizes these and other factors contributing to the
declining error rate.
Table 6: Summary of Factors Contributing to Declining Food Stamp
Improper Payment Error Rates and Amounts:
USDA FNS - general actions:
Factor: FNS monitors and validates states' QC reviews;
Description: FNS approves sampling plans and state samples to determine
improper payment rates and amounts.
Factor: FNS is responsible for determining efficiency and effectiveness
of state agency;
Description: FNS establishes an opinion on efficiency and effectiveness
of the state based on (1) reports submitted to FNS by the state; (2)
FNS reviews of state agency operations; (3) state performance reporting
systems and corrective action efforts; and (4) other available
information, such as federal audits and investigations, civil rights
reviews, administrative cost data, complaints, and pending litigation.
Factor: FNS imposes penalties and incentives on state Food Stamp
programs;
Description: FNS compares state error rates to the national error rate
to determine incentives and penalties for state Food Stamp programs.
Factor: FNS promotes knowledge sharing of good practices;
Description: FNS provides funding to state and local food stamp
officials to promote knowledge sharing. States are using information
from the QC system to track the results of their policy and program
changes over time and communicate timely operational information to
local offices.
USDA FNS - specific actions.
Factor: USDA Partner Web;
Description: FNS has established an intranet Web site for state Food
Stamp agencies.
Factor: National Payment Accuracy Workgroup;
Description: The workgroup is an information-sharing tool across
regions and states that consists of representatives from USDA
headquarters and regional offices.
Factor: Payment Accuracy Branch;
Description: This national level group works with the FNS regions to
suggest policy and program changes and to monitor state performance.
Factor: USDA Early Detection System;
Description: This system targets states that may be experiencing a
higher incidence of errors based on preliminary QC data.
Technological.
Factor: EBT;
Description: EBT electronically transfers funds from a food stamp
benefits account to a retailer's account.
Factor: GovBenefits;
Description: GovBenefits is a citizen-centered guide to government
assistance and benefits, including food stamps; school lunch and
breakfast; Women, Infants, and Children; and nutrition assistance. It
includes a new prescreening tool that enables anyone with access to the
Internet to determine his or her eligibility for food stamps.
Factor: Data matches;
Description: Income Eligibility and Verification System. This is a tool
for state agencies to use in comparing income reported by program
applicants and recipients with income reported on six databases
containing information on earnings reported to the state by in-state
employers; earned and unearned income reported to the Internal Revenue
Service; and the receipt of Social Security, unemployment insurance,
and supplementary security income benefits; ; Systematic Alien
Verification Eligibility system matches. This program enables federal,
state, and local government agencies to obtain immigration status
information for determining applicant's/recipient's eligibility for
public benefits.
Factor: Fingerprint imaging system;
Description: This is an automated fingerprint imaging system used by
certain states as a means of positive identification of welfare
applicants and clients.
Legislation and oversight.
Factor: Farm Security and Rural Investment Act of 2002;
Description: The act has allowed states to adopt simplified reporting
requirements, which require food stamp households to report interim
changes in their income only when they rise to a level that would make
them ineligible for benefits.
Factor: Congress;
Description: Congress passed IPIA and has held congressional hearings.
Factor: OMB;
Description: OMB issued guidance to federal agencies for IPIA
reporting.
Factor: External auditors;
Description: GAO and USDA OIG audited and reviewed the Food Stamp
Program; GAO has issued reports on governmentwide improper payment
reporting.
Source: GAO.
[End of table]
[End of section]
Appendix IV: UI Benefit Accuracy Measurement and National Directory of
New Hires Database:
Overview of Program:
The UI Program was established by Title III of the Social Security Act
in 1935 and is a key component in ensuring the financial security of
America's workforce. The program, which is administered by the states
with oversight from Labor's Employment and Training Administration,
provides temporary cash benefits to workers who lose their jobs through
no fault of their own. Although Labor provides oversight and guidance
to ensure that each state operates its program consistent with federal
guidelines, the federal-state structure of UI places primary
responsibility for administering the program on the states. The states
can administer their UI programs in ways that best suit their needs
within the guidelines established by federal law. Eligibility for UI,
benefit amounts, and the length of time benefits are available are
determined by the state law under which UI claims are established. In
the majority of states, benefit funding is based solely on a tax
imposed on employers.
Labor has two initiatives in place to identify, estimate, and prevent
improper payments--the Benefit Accuracy Measurement (BAM) program and
the National Directory of New Hires (NDNH). Labor's BAM program is
designed to determine the accuracy of paid and denied claims in the UI
Program. It does this by reconstructing the UI claims process from
samples of weekly payments and denied claims using data verified by
trained investigators. For claims that were overpaid, underpaid, or
improperly denied, the BAM program determines the cause of and the
party responsible for the error, the point in the UI claims process at
which the error was detected, and actions taken by the agency and
employers prior to the error. For erroneously paid claims, the BAM
program determines the amount of benefits the claimants should have
received, which becomes the basis for subsequent recovery efforts.
The NDNH is a database, maintained by HHS's Office of Child Support
Enforcement (OCSE), that contains information on all newly hired
employees, quarterly wage reports for all employees, and UI claims
nationwide. The NDNH enhances states' ability to detect unreported work
violations by UI claimants working in other states or for certain
employers that operate in multiple states.[Footnote 32] In addition,
the NDNH can help improve the accuracy of Labor's error estimates.
Output files from the NDNH cross-match can be easily integrated into
Labor's BAM program by cross-matching the Social Security numbers of
the claimants against the NDNH results.
Improper Payment Estimates:
Since 1988, Labor has reported a national improper payment estimate for
its UI Program. As part of the BAM program's quality control, each
state is responsible for selecting representative samples and
investigating the accuracy of the benefit determinations, benefit
payments, and recoveries. The results of these reviews are integrated
with the BAM system to identify erroneously paid claims.
UI overpayments at a national level have fluctuated over the past 16
years. The lowest reported national error rate occurred in 1991 at 7.5
percent while the highest national error rate occurred in 1988 with
10.1 percent, as shown in figure 3.
Figure 3: UI Overpayment National Error Rates, Calendar Years 1988-
2004:
[See PDF for image]
[End of figure]
We also noted that since 2001, UI's national error rate has steadily
increased. Labor attributes the rise in error rates to an increase in
payments to claimants who improperly continue to claim benefits despite
having returned to work. Although when combined, the dollar amounts of
overpayments and underpayments decreased between calendar years 2003
and 2004, the national error rate increased from 9.9 percent in
calendar year 2003 to 10.6 percent in calendar year 2004.
At the state level, the improper payment overpayments in calendar year
2003 ranged from $2,829,017 to $450,073,624, while underpayments ranged
from $100,263 to $37,825,338. In calendar year 2004, overpayments
ranged from $2,250,919 to $317,991,985 and underpayments ranged from
$20,184 to $40,330,046. Table 7 lists the UI improper payment
overpayments and underpayments by state.
Table 7: UI Overpayments and Underpayments by State for Calendar Years
2003 and 2004:
State: Alabama;
CY 2003 overpayment amount: $35,105,972;
CY 2003 underpayment amount: $584,587;
CY 2004 overpayment amount: $32,171,531;
CY 2004 underpayment amount: $554,682.
State: Alaska;
CY 2003 overpayment amount: $11,162,449;
CY 2003 underpayment amount: $1,596,636;
CY 2004 overpayment amount: $17,821,095;
CY 2004 underpayment amount: $946,371.
State: Arizona;
CY 2003 overpayment amount: $72,804,546;
CY 2003 underpayment amount: $431,189;
CY 2004 overpayment amount: $86,486,204;
CY 2004 underpayment amount: $395,947.
State: Arkansas;
CY 2003 overpayment amount: $29,215,897;
CY 2003 underpayment amount: $949,596;
CY 2004 overpayment amount: $36,479,866;
CY 2004 underpayment amount: $1,261,552.
State: California;
CY 2003 overpayment amount: $414,858,548;
CY 2003 underpayment amount: $37,825,338;
CY 2004 overpayment amount: $317,991,985;
CY 2004 underpayment amount: $16,002,843.
State: Colorado;
CY 2003 overpayment amount: $41,184,047;
CY 2003 underpayment amount: $2,164,869;
CY 2004 overpayment amount: $39,215,471;
CY 2004 underpayment amount: $2,695,087.
State: Connecticut;
CY 2003 overpayment amount: $30,687,056;
CY 2003 underpayment amount: $2,247,107;
CY 2004 overpayment amount: $27,402,585;
CY 2004 underpayment amount: $6,134,051.
State: Delaware;
CY 2003 overpayment amount: $15,302,193;
CY 2003 underpayment amount: $1,561,448;
CY 2004 overpayment amount: $14,709,043;
CY 2004 underpayment amount: $1,312,533.
State: District of Columbia;
CY 2003 overpayment amount: $11,165,946;
CY 2003 underpayment amount: $910,817;
CY 2004 overpayment amount: $8,798,087;
CY 2004 underpayment amount: $731,650.
State: Florida;
CY 2003 overpayment amount: $57,582,448;
CY 2003 underpayment amount: $4,465,578;
CY 2004 overpayment amount: $39,949,285;
CY 2004 underpayment amount: $3,886,117.
State: Georgia;
CY 2003 overpayment amount: $39,528,066;
CY 2003 underpayment amount: $3,311,252;
CY 2004 overpayment amount: $25,628,425;
CY 2004 underpayment amount: $4,440,834.
State: Hawaii;
CY 2003 overpayment amount: $7,389,037;
CY 2003 underpayment amount: $484,995;
CY 2004 overpayment amount: $4,588,132;
CY 2004 underpayment amount: $377,273.
State: Idaho;
CY 2003 overpayment amount: $32,543,779;
CY 2003 underpayment amount: $1,635,577;
CY 2004 overpayment amount: $26,574,852;
CY 2004 underpayment amount: $854,074.
State: Illinois;
CY 2003 overpayment amount: $198,225,860;
CY 2003 underpayment amount: $21,203,264;
CY 2004 overpayment amount: $258,873,508;
CY 2004 underpayment amount: $7,863,974.
State: Indiana;
CY 2003 overpayment amount: $81,364,624;
CY 2003 underpayment amount: $3,517,644;
CY 2004 overpayment amount: $72,745,986;
CY 2004 underpayment amount: $1,504,146.
State: Iowa;
CY 2003 overpayment amount: $49,946,856;
CY 2003 underpayment amount: $4,540,623;
CY 2004 overpayment amount: $35,151,973;
CY 2004 underpayment amount: $4,695,390.
State: Kansas;
CY 2003 overpayment amount: $105,514,650;
CY 2003 underpayment amount: $453,015;
CY 2004 overpayment amount: $95,028,141;
CY 2004 underpayment amount: $115,817.
State: Kentucky;
CY 2003 overpayment amount: $12,066,382;
CY 2003 underpayment amount: $2,912,575;
CY 2004 overpayment amount: $19,653,481;
CY 2004 underpayment amount: $2,591,230.
State: Louisiana;
CY 2003 overpayment amount: $43,613,878;
CY 2003 underpayment amount: $3,371,922;
CY 2004 overpayment amount: $53,374,181;
CY 2004 underpayment amount: $2,799,155.
State: Maine;
CY 2003 overpayment amount: $10,618,736;
CY 2003 underpayment amount: $489,105;
CY 2004 overpayment amount: $8,639,827;
CY 2004 underpayment amount: $197,681.
State: Maryland;
CY 2003 overpayment amount: $69,819,363;
CY 2003 underpayment amount: $1,637,991;
CY 2004 overpayment amount: $40,050,308;
CY 2004 underpayment amount: $418,379.
State: Massachusetts;
CY 2003 overpayment amount: $59,951,206;
CY 2003 underpayment amount: $22,975,313;
CY 2004 overpayment amount: $81,028,654;
CY 2004 underpayment amount: $25,012,542.
State: Michigan;
CY 2003 overpayment amount: $171,063,097;
CY 2003 underpayment amount: $11,938,973;
CY 2004 overpayment amount: $169,804,248;
CY 2004 underpayment amount: $13,363,398.
State: Minnesota;
CY 2003 overpayment amount: $74,342,318;
CY 2003 underpayment amount: $5,950,738;
CY 2004 overpayment amount: $61,201,839;
CY 2004 underpayment amount: $6,762,257.
State: Mississippi;
CY 2003 overpayment amount: $14,667,566;
CY 2003 underpayment amount: $737,159;
CY 2004 overpayment amount: $11,691,476;
CY 2004 underpayment amount: $777,317.
State: Missouri;
CY 2003 overpayment amount: $37,829,265;
CY 2003 underpayment amount: $455,774;
CY 2004 overpayment amount: $42,021,818;
CY 2004 underpayment amount: $1,322,721.
State: Montana;
CY 2003 overpayment amount: $19,084,853;
CY 2003 underpayment amount: $357,651;
CY 2004 overpayment amount: $10,666,139;
CY 2004 underpayment amount: $554,886.
State: Nebraska;
CY 2003 overpayment amount: $28,983,959;
CY 2003 underpayment amount: $442,606;
CY 2004 overpayment amount: $16,286,657;
CY 2004 underpayment amount: $559,465.
State: Nevada;
CY 2003 overpayment amount: $27,517,223;
CY 2003 underpayment amount: $647,102;
CY 2004 overpayment amount: $24,515,908;
CY 2004 underpayment amount: $596,053.
State: New Hampshire;
CY 2003 overpayment amount: $8,914,628;
CY 2003 underpayment amount: $723,087;
CY 2004 overpayment amount: $5,895,778;
CY 2004 underpayment amount: $595,850.
State: New Jersey;
CY 2003 overpayment amount: $237,090,931;
CY 2003 underpayment amount: $27,525,068;
CY 2004 overpayment amount: $222,110,349;
CY 2004 underpayment amount: $40,330,046.
State: New Mexico;
CY 2003 overpayment amount: $3,734,779;
CY 2003 underpayment amount: $100,263;
CY 2004 overpayment amount: $15,847,493;
CY 2004 underpayment amount: $956,518.
State: New York;
CY 2003 overpayment amount: $234,778,623;
CY 2003 underpayment amount: $18,566,677;
CY 2004 overpayment amount: $228,731,314;
CY 2004 underpayment amount: $10,745,766.
State: North Carolina;
CY 2003 overpayment amount: $120,614,563;
CY 2003 underpayment amount: $2,535,441;
CY 2004 overpayment amount: $61,128,148;
CY 2004 underpayment amount: $3,182,783.
State: North Dakota;
CY 2003 overpayment amount: $3,787,405;
CY 2003 underpayment amount: $120,433;
CY 2004 overpayment amount: $2,830,433;
CY 2004 underpayment amount: $84,326.
State: Ohio;
CY 2003 overpayment amount: $155,256,162;
CY 2003 underpayment amount: $17,731,594;
CY 2004 overpayment amount: $251,668,448;
CY 2004 underpayment amount: $22,282,432.
State: Oklahoma;
CY 2003 overpayment amount: $5,296,937;
CY 2003 underpayment amount: $1,000,533;
CY 2004 overpayment amount: $6,485,106;
CY 2004 underpayment amount: $495,540.
State: Oregon;
CY 2003 overpayment amount: $76,283,709;
CY 2003 underpayment amount: $2,087,765;
CY 2004 overpayment amount: $71,048,437;
CY 2004 underpayment amount: $3,265,205.
State: Pennsylvania;
CY 2003 overpayment amount: $211,443,998;
CY 2003 underpayment amount: $24,573,951;
CY 2004 overpayment amount: $177,952,460;
CY 2004 underpayment amount: $12,198,354.
State: Rhode Island;
CY 2003 overpayment amount: $11,154,488;
CY 2003 underpayment amount: $870,796;
CY 2004 overpayment amount: $13,413,248;
CY 2004 underpayment amount: $1,161,938.
State: South Carolina;
CY 2003 overpayment amount: $34,591,337;
CY 2003 underpayment amount: $910,298;
CY 2004 overpayment amount: $35,610,338;
CY 2004 underpayment amount: $803,766.
State: South Dakota;
CY 2003 overpayment amount: $2,963,279;
CY 2003 underpayment amount: $147,069;
CY 2004 overpayment amount: $2,413,427;
CY 2004 underpayment amount: $20,184.
State: Tennessee;
CY 2003 overpayment amount: $46,661,937;
CY 2003 underpayment amount: $1,903,459;
CY 2004 overpayment amount: $20,595,851;
CY 2004 underpayment amount: $1,455,381.
State: Texas;
CY 2003 overpayment amount: $450,073,624;
CY 2003 underpayment amount: $3,038,105;
CY 2004 overpayment amount: $271,753,213;
CY 2004 underpayment amount: $9,491,381.
State: Utah;
CY 2003 overpayment amount: $18,988,138;
CY 2003 underpayment amount: $1,804,303;
CY 2004 overpayment amount: $11,817,023;
CY 2004 underpayment amount: $1,366,489.
State: Vermont;
CY 2003 overpayment amount: $2,829,017;
CY 2003 underpayment amount: $887,148;
CY 2004 overpayment amount: $2,250,919;
CY 2004 underpayment amount: $388,363.
State: Virginia;
CY 2003 overpayment amount: $127,967,956;
CY 2003 underpayment amount: $2,610,323;
CY 2004 overpayment amount: $107,088,844;
CY 2004 underpayment amount: $2,392,156.
State: Washington;
CY 2003 overpayment amount: $167,103,334;
CY 2003 underpayment amount: $3,326,944;
CY 2004 overpayment amount: $118,052,534;
CY 2004 underpayment amount: $2,052,148.
State: West Virginia;
CY 2003 overpayment amount: $3,630,150;
CY 2003 underpayment amount: $1,264,231;
CY 2004 overpayment amount: $6,652,142;
CY 2004 underpayment amount: $1,222,713.
State: Wisconsin;
CY 2003 overpayment amount: $64,602,987;
CY 2003 underpayment amount: $2,345,646;
CY 2004 overpayment amount: $86,624,141;
CY 2004 underpayment amount: $3,788,730.
State: Wyoming;
CY 2003 overpayment amount: $5,360,715;
CY 2003 underpayment amount: $151,887;
CY 2004 overpayment amount: $5,662,231;
CY 2004 underpayment amount: $360,752.
State: Total;
CY 2003 overpayment amount: $3,796,268,517;
CY 2003 underpayment amount: $254,025,465;
CY 2004 overpayment amount: $3,404,182,582;
CY 2004 underpayment amount: $227,368,246.
Source: Labor.
[End of table]
State and Federal Improper Payment Initiatives Under Way:
In addition to its leadership role in producing improper payment
estimates on a national level, Labor has initiated the NDNH pilot for
the UI Program to further assist in identifying, detecting, and
preventing improper payments. In fiscal year 2005, three states (Texas,
Utah, and Virginia) participated in the pilot. Labor initiated the NDNH
pilot to determine how a cross-match between NDNH and state UI claimant
data would help identify and reduce improper payments. For further
review of Labor's pilot project, we visited the state of Texas.
Texas's participation in the NDNH pilot was through its Texas Workforce
Commission (TWC). During this pilot, TWC conducted three matches of the
state UI claimant data against the NDNH's new hire data, UI claimant
data, and quarterly wage data to identify potential overpayments.
Generally, to perform these matches, TWC electronically transmitted
state UI claimant data to HHS's OCSE. OCSE then compared the state UI
claimant data to data in the NDNH. Potential matches of claimants who
may have improperly received unemployment benefits were then
transmitted to TWC. TWC investigated all matches to determine the
validity and amount of overpayment. According to TWC, using the
national cross-match along with the statewide cross-match helped detect
50 percent more cases of potential fraud in one quarter than it would
have detected otherwise.
Besides the NDNH pilot, Texas also communicated to us that it had
several other actions in place to manage UI improper payments. In July
2004, the Texas governor issued an executive order[Footnote 33] for
each state agency to report on efforts to assess risk in the agency;
identify best practices for eliminating fraud in contracting, contract
management, and procurement; and describe common components for fraud
prevention and elimination programs. Each agency was also to develop a
fraud prevention program. Additionally, the executive order required
TWC to prioritize prevention, detection, and elimination of fraud and
abuse in the UI Program by:
* identifying any state policies, weaknesses in computer cross-matching
systems, and other appropriate factors that are ineffective in
preventing fraud and abuse;
* developing strategies to address benefit fraud and claims
overpayments; and:
* identifying and implementing national best practices for detecting
and prosecuting fraudulent schemes, identifying cost-effective
strategies designed to eliminate fraud, and increasing recovery of
overpayments.
Further, TWC has been educating employers on their responsibilities to
provide TWC with information to make benefit determinations. For
example, TWC sent letters to those employers that have a history of not
providing complete or timely information during the initial claims
investigation. These letters reiterated employers' responsibilities and
TWC's expectations for receiving timely information during an
investigation.
Based on its NDNH pilot results, Labor reported in its fiscal year 2005
PAR that a substantial amount of additional overpayments could be
detected using the database. In addition, Labor reported that it is
already moving ahead with full implementation of the NDNH cross-match
with 5 states (Connecticut, Texas, Utah, Virginia, and Washington).
Labor expects 29 states to use NDNH by the end of fiscal year 2006.
In addition to funding initiatives related to the new hire cross-
matches, Labor has announced that states will be given an additional
incentive to prevent and detect overpayments by implementing core
measures in states' performance budget plans based on the level of
overpayments the states have detected. Labor's fiscal year 2006 budget
request contained a legislative proposal that is designed to give
states the means to obtain funding for integrity activities, including
additional staff, to enhance recovery and prevent overpayments. Also,
to reduce overpayments and facilitate reemployment, Labor awarded
Reemployment and Eligibility Assessments grants to 21 states during
fiscal year 2005. The grants have been used to conduct in-person
claimant interviews to assess UI beneficiaries' need for reemployment
services and their continued eligibility for benefits and to ensure
that beneficiaries understand that they must stop claiming benefits
upon their return to work. Further, Labor continues to promote data
sharing with other agencies, such as the Social Security
Administration, to identify, detect, and prevent improper payments.
[End of section]
Appendix V: Highway Planning and Construction Pilot to Estimate
Improper Payments:
Overview of Program:
The objective of the Highway Planning and Construction Program is to
assist state transportation agencies in the planning and development of
an integrated, interconnected transportation system. The program is
also called the Federal-Aid Highway Program since federal funding for
highways is provided to the states mostly through a series of formula
grant programs collectively known by that name. The Federal Highway
Administration under DOT administers the Highway Planning and
Construction Program and distributes most highway funds, which can be
used for a variety of projects, such as capital improvement and
development of transportation management systems. Most projects are
administered by or through state transportation departments, and the
states have considerable discretion in selecting specific highway
projects and in determining how to allocate available federal funds
among the various projects they have selected.
In fiscal year 2004, DOT conducted a review of its programs and
activities, as required by IPIA. As a result of this review, DOT found
that data did not exist at the department level to adequately estimate
the amount of improper payments for its grant programs. To address this
issue, DOT contracted with an outside firm and initiated a research and
development project to develop a methodology to estimate improper
payments in its grant programs. The Highway Planning and Construction
Program was selected as the test pilot program. The pilot project had
two objectives: (1) develop a testing methodology for grantees and (2)
test the developed methodology.
The pilot was conducted on two construction projects in Tennessee.
Samples were selected from payment transaction files using statistical
sampling. For items selected, documentation that supported payment was
requested and reviewed. The contractor developed a comprehensive
document that described the planning and construction phases of
projects and a methodology to determine whether the goods and services
received were in accordance with contractual terms and conditions.
Figure 4 is an example of the testing procedures for asphalt, one
component of the construction project.
Figure 4: Example of Test Procedures for Asphalt:
[See PDF for image]
[End of figure]
Improper Payment Estimates:
In its fiscal years 2004 and 2005 PARs, DOT reported a zero-dollar
amount for its improper payment estimate for the Highway Planning and
Construction Program. To enhance its reporting of improper payments,
DOT conducted a pilot in the state of Tennessee. DOT completed this
project in the summer of 2005. Testing disclosed three underpayments,
one of which was determined by DOT to be statistically insignificant.
An extrapolation of the other two errors to the population of payments
for that construction project resulted in an improper payment estimate
of $111,671. The sample was not designed to produce an estimate for the
Tennessee statewide Highway Planning and Construction Program.
State and Federal Improper Payment Initiatives Under Way:
DOT noted in its fiscal year 2005 PAR that the Tennessee pilot resulted
in a methodology and testing procedures that will be used nationwide,
but that the testing procedures may need to be modified based on each
state's grant management policies. DOT plans to pilot the project in
more volunteer states in fiscal year 2006 and extend the process
nationwide in fiscal year 2007. In addition to participating in the
pilot, states work to reduce improper payments by implementing computer
software to detect fraud and abuse. One such tool is the Transportation
Software Management Solution, which was used by several state programs
in their Highway Planning and Construction programs and contains a Bid
Analysis Management System that allows highway agencies to analyze bids
for collusion. At the federal level, DOT improper payment initiatives
for the future include citing the inherent higher risk of improper
payments because of concentrated and accelerated spending related to
Hurricanes Katrina and Rita. Fiscal year 2006 Highway Planning and
Construction Program testing will be focused on these hurricane
regions. In its fiscal year 2006 PAR, DOT will provide interim
information on the amounts and causes of improper payments and control
procedures that can be used to prevent or detect improper payments in
national emergency situations.
[End of section]
Appendix VI: Medicaid Payment Accuracy and Payment Error Rate
Measurement Project:
Overview of Program:
Title XIX of the Social Security Act authorizes states to provide
health care services to low-income individuals and families through the
Medicaid program. Although jointly financed by the states and the
federal government, Medicaid is administered directly by the states.
Within broad federal guidelines, each state establishes its own
eligibility standards; determines the type, amount, duration, and scope
of covered services; and sets payment rates.
The Centers for Medicare and Medicaid Services (CMS), an agency under
HHS, has the role of facilitating states' program integrity efforts and
seeing that states have the necessary processes in place to prevent and
detect improper payments. In July 2001, CMS began soliciting states to
participate in Year 1 of the Medicaid Payment Accuracy Measurement
(PAM) pilot project. CMS continued to administer the PAM pilot until
its Year 3 study in fiscal year 2004. For fiscal year 2005, CMS
modified the pilot to measure improper payment error rates rather than
payment accuracy, and changed the name of the pilot from PAM to Payment
Error Rate Measurement (PERM). Table 8 shows the number of states that
participated in the pilot each year.
Table 8: Number of States Participating in CMS's Medicaid Pilots to
Estimate Improper Payments:
Pilot name: PAM Year 1 (FY 2002);
Number of states participating: 9.
Pilot name: PAM Year 2 (FY 2003);
Number of states participating: 12.
Pilot name: PAM Year 3 (FY 2004);
Number of states participating: 24.
Pilot name: PERM Year 1 (FY 2005);
Number of states participating: 26.
Source: CMS.
[End of table]
In Year 2 of the pilot, CMS adopted a standard methodology for the
states to use. Specifically, sampling strata consisting of Medicaid
services were identified and states could perform sampling for the fee-
for-service (FFS)[Footnote 34] component, the managed care[Footnote 35]
component, or both. The methodology was refined for Year 3 to include a
subsample for eligibility review. For the fiscal year 2005 PERM pilot,
CMS set the sample size and provided states the following general
methodology:
1. Plan the project, including assembling and training staff and
collecting policies and procedures for reviews.
2. Select a sample of payments and validate the sample. For FFS, the
sample is a claim or line item, which is a request for payment for
services rendered relating to the care and treatment of a disease or
injury. For managed care, the sample is a capitation payment, which is
a payment based on a predetermined agreement rather than on actual cost
of care, services delivered, or both.[Footnote 36]
3. Conduct a processing review on each claim.
4. Conduct a medical record review on each FFS claim.
5. Conduct an eligibility review on a subsample of claims.
6. Calculate the overall error rate as well as error rates for the FFS
and managed care components.
7. Develop a final report.
Improper Payment Estimates:
Because of the variations in the states' Medicaid programs, CMS
provided states the option of either testing for the FFS or managed
care components, including testing eligibility for the two components.
The rates[Footnote 37] for the 12 states that participated in the PAM
pilot for Year 2 (fiscal year 2003) ranged from 0.3 percent to 18.6
percent for the FFS component and 0 percent to 2.5 percent for the
managed care component. The rates for the 24 states that participated
in the Year 3 PAM pilot (fiscal year 2004) ranged from 0.80 percent to
54.3 percent for the FFS component and 0 percent to 7.45 percent for
the managed care component. Rates for the Year 1 PERM pilot (fiscal
year 2005) had not been published at the conclusion of our fieldwork.
Although all states used a standard methodology to produce the rates,
CMS noted that these rates should not be compared among states.
Specifically, states applied different administrative standards that
resulted in a lack of a common approach to the reviews among states.
For medical reviews, states have different policies against which the
reviews are conducted. For eligibility reviews, states had two review
options under the PAM Year 3 pilot for verifying program eligibility.
Other differences include the level of provider cooperation in
submitting information and whether states conducted reviews in-house or
contracted with vendors to perform the reviews.
CMS identified Texas as having a leadership role in estimating improper
payments for its Medicaid program. Texas was estimating improper
payments prior to implementing the CMS pilots. Under state statute,
effective 1997, Texas was required to biennially estimate improper
payments for its Medicaid program. In September 2003, the state of
Texas passed another statute, among other things, to fund 200
additional positions to investigate Medicaid fraud. Texas has also
initiated a Medicaid Integrity Pilot (MIP) project to assist in
preventing improper payments. The MIP project incorporates the use of
biometric technology, such as fingerprint imaging and smart
cards,[Footnote 38] as eligibility verification tools. For example,
Texas issues smart cards to Medicaid clients participating in the pilot
and smart card and biometric readers to medical providers. When a
client obtains services, he or she inserts the card into the smart card
reader and positions his or her finger on the biometric reader, which
compares the print to the fingerprint image contained on the card. The
use of this type of technology promotes positive identification,
incorporates automated eligibility determination, and assists in an
electronic billing process.
Furthermore, Texas has performed a feasibility study to consolidate
multiple program benefits onto a single card called an Integrated
Benefits Card (IBC). This study has identified four primary benefit
programs for consolidation--Medicaid; TANF; Food Stamps; and Women,
Infants, and Children. Texas believes that the IBC may facilitate the
needs of the Medicaid program by preventing fraud, making payments to
medical providers more quickly, and offering a means for providers to
quickly and accurately verify the eligibility of a client.
In addition to the above initiatives, CMS has taken additional steps
programwide to estimate improper payments at the national level. See
table 9 for a detailed description of actions taken.
Table 9: Timeline of CMS Regulations and Initiatives to Estimate
Medicaid Improper Payments:
Date: Fiscal year 2000;
Medicaid improper payment regulation/initiative: Established payment
accuracy Government Performance Results Act goals.
Date: July 2001;
Medicaid improper payment regulation/initiative: CMS formally solicited
states to participate in the PAM Year 1 pilot.
Date: May 2002;
Medicaid improper payment regulation/initiative: CMS solicited states
to participate in the PAM Year 2 pilot.
Date: November 2002;
Medicaid improper payment regulation/initiative: Enactment of IPIA.
Date: December 2002;
Medicaid improper payment regulation/initiative: Issued PAM Year 1
pilot final report (FY 2002).
Date: June 2003;
Medicaid improper payment regulation/initiative: CMS solicited states
to participate in the PAM Year 3 pilot.
Date: April 2004;
Medicaid improper payment regulation/initiative: Issued PAM Year 2
pilot final report (FY 2003).
Date: July 2004;
Medicaid improper payment regulation/initiative: CMS solicited states
to participate in the PERM Year 1pilot.
Date: August 27, 2004;
Medicaid improper payment regulation/initiative: Medicaid Program and
SCHIP: Payment Error Rate Measurement, 69 Fed. Reg. 52620-32 (Aug. 27,
2004) (to be codified at 42 C.F.R. pts. 431 and 457).
Date: December 13, 2004;
Medicaid improper payment regulation/initiative: Results of the Year 2
PAM pilot (FY 2003) reported in the FY 2004 PAR.
Date: June 15, 2005;
Medicaid improper payment regulation/initiative: Issued PAM Year 3
pilot final report (FY 2004).
Date: July 22, 2005;
Medicaid improper payment regulation/initiative: Agency Information
Collection Activities: Proposed Collection; Comment Request, 70 Fed.
Reg. 42324-CMS-10166.
Date: August 26, 2005;
Medicaid improper payment regulation/initiative: Agency Information
Collection Activities: Submission for OMB Review; Comment Request, 70
Fed. Reg. 50357-CMS-10166.
Date: October 5, 2005;
Medicaid improper payment regulation/initiative: Medicaid Program and
SCHIP: Payment Error Rate Measurement, 70 Fed. Reg. 58260-77 (Oct. 5,
2005) (to be codified at 42 C.F.R. pts. 431 and 457).
Date: November 15, 2005;
Medicaid improper payment regulation/initiative: Results from Year 3
PAM pilot (FY 2004) were reported in the FY 2005 PAR.
Date: Fiscal year 2006;
Medicaid improper payment regulation/initiative: Results of the PERM
pilot will be reported in the FY 2006 PAR.
Date: Fiscal year 2007;
Medicaid improper payment regulation/initiative: Results of the FY 2006
national Medicaid FFS error rate will be reported in the FY 2007 PAR,
based on a statistically valid sample of states and claims within those
states.
Date: Fiscal year 2008;
Medicaid improper payment regulation/initiative: Results of the FY 2007
federal contractor estimate of a national error rate for Medicaid's
FFS, managed care, and eligibility components will be reported in the
FY 2008 PAR.
Sources: GAO and CMS.
Note: Shading represents future actions.
[End of table]
State and Federal Improper Payment Initiatives Under Way:
In October 2005, CMS published an interim final rule, with plans to
publish a final rule that would include responses to comments received.
According to the interim final rule, states would be stratified based
on the states' annual FFS Medicaid expenditures from the previous year,
and a random sample of up to 18 states would be reviewed. States would
only be selected once every 3 years. The interim final rule also
outlines the strategy for conducting medical and data-processing
reviews on claims made for FFS only. CMS will address estimating
improper payments for Medicaid's managed care and eligibility
components at a later time. In November 2005, CMS sent a memo to the
states selected for review during fiscal year 2006.
Subsequent to the publication of the October 2005 interim final rule,
CMS stated that it anticipates the number of states selected each year
will be 17 to ensure that each state and the District of Columbia would
only be selected once every 3 years. This approach would exclude any
U.S. territories or possessions that receive Medicaid funds. In a
discussion with CMS's consultant firm, it communicated to us that the
sampling approach to be employed was statistically valid since every
state was selected by strata, for each of the 3 years, in year 1 of
this process, and thus, each state had an equal chance of being
selected for years 1 through 3. Because CMS's sampling methodology,
including sampling plans, had not been fully documented by the
conclusion of our fieldwork, we were unable to independently assess the
statistical validity of CMS's approach to obtain a national improper
payment estimate for its Medicaid program.
In its fiscal year 2005 PAR, HHS also identified efforts to detect and
reduce improper payments through activities other than the pilot
project. For example, HHS's Health Care Fraud and Abuse Control Office
has two projects under way that will assist in reporting improper
payments. The office plans to hire 100 staff to conduct prospective
reviews of state:
Medicaid operations and the Medicare/Medicaid data match
program[Footnote 39] to identify areas where efficiencies could be made
to enhance payment accuracy. Additionally, HHS expects to improve its
data match capabilities to detect improper payments for Medicaid, as
well as other programs, through the use of its Public Assistance
Reporting Information System (PARIS). PARIS is a voluntary project that
enables the 33 participating states' public assistance data to be
matched against several databases to help maintain program integrity
and to detect and deter improper payments. CMS expects to be fully
compliant with the IPIA requirements for its Medicaid program by fiscal
year 2008.
[End of section]
Appendix VII: Comments from the Office of Management and Budget:
EXECUTIVE OFFICE OF THE PRESIDENT:
OFFICE OF MANAGEMENT AND BUDGET:
THE CONTROLLER:
WASHINGTON. D. C. 20503:
McCoy Williams, Director:
Financial Management and Assurance:
United States Government Accountability Office:
440 G Street, NW:
Washington, DC 20548:
Dear Mr. Williams:
Thank you for giving us the opportunity to comment on the Government
Accountability Office (GAO) draft report entitled, "Federal and State
Coordination Needed to Report National Improper Payment Estimates on
Federal Programs." In general, OMB agrees with the recommendations GAO
made to enhance progress toward meeting the goals of the Improper
Payment Information Act of 2002 (IPIA), and in determining the role
States in assisting Federal agencies to report a national improper
payment estimate for Federal programs.
During fiscal year 2005, the Federal Government made substantial
progress in meeting the objectives of the IPIA. Most notably the
government-wide improper payments total reported last year decreased by
approximately $7.8 billion, due to dramatic improvements implemented by
the Department of Health and Human Services in the stewardship of
Medicare funds. In addition, agencies demonstrated improved error
detection and measurement, providing improper payment data on programs
for which no improper payment statistics had been available in the
past. Much of the success achieved in the past year can be attributed
to the PMA initiative to eliminate improper payments, which established
an effective accountability framework for ensuring that Federal
agencies initiate all necessary financial management improvements for
addressing this critical problem area.
Going forward, the Federal financial community will work to achieve
additional reductions to the government-wide improper payment total,
while also improving improper payment measurement and detection. As
discussed in the instant report, OMB is working closely with the Chief
Financial Officers Council (CFOC) to develop and implement strategies
for improving the measurement of improper payments in grant programs.
Our objective is to ensure that accurate improper payment rates can be
generated without creating undue cost and burden on Federal agencies or
our state partners.
As noted in the report, OMB and CFOC have several initiatives underway
to help achieve this objective. First, we are exploring opportunities,
such as the Single Audit, where we can leverage existing processes for
relevant information on the incidence of improper payments. Second, OMB
has begun a new effort to establish a Federal-State partnership to
foster improved understanding and cooperation between the two levels of
government. It is hoped that this effort will lead to enhanced improper
payment identification, measurement and reporting on Federally-funded
programs which are State-administered. Third, OMB has revised Circular
A-136 to require grant-making agencies to provide additional
information in their annual Performance and Accountability Reports
(PARs) in regard to the program integrity activities conducted with
their grant recipients.
GAO made four recommendations to OMB to help further the progress
toward meeting the goals of IPIA and determining states' role in
assisting federal agencies to report a national improper payment
estimate on federal programs.
1. Revise IPIA policy guidance to clearly define state-administered
programs so that federal agencies can consistently identify such
programs.
OMB agrees with this comment. Following discussion of GAO's comments to
our draft guidance revision (Appendix C to OMB Circular A-123), and in
response to written comments received from GAO, OMB agrees that our
definition would benefit from further clarity. OMB will work closely
with GAO and other relevant stakeholders to revise and enhance this
definition.
2. Expand IPIA guidance to provide criteria that Federal agencies
should consider when developing a plan or methodology for estimating a
national improper payment estimate for State-administered programs,
such as criteria that address the nature and extent of data and
documentation needed from the States to calculate a national improper
payment estimate.
OMB agrees with this comment. OMB has provided a great deal of guidance
to agencies on developing their measurement plans. Nonetheless, we plan
to expand our discussion of these concepts in our revised guidance,
particularly in relationship to State-administered programs that are
partially or fully funded by Federal agencies. In addition, as
additional programs are identified as risk susceptible in the grants
community, this type of information would prove helpful. For the most
part, the agencies involved either have statisticians on staff or under
contract to ensure their measurement strategies are statistically
valid. We look forward to continuing to work collaboratively with GAO
to ensure Federal agencies fully understand the nature and extent of
data and documentation necessary from States in order to calculate a
national improper payment estimate.
3. Require Federal agencies to communicate and make available to the
States, guidance on conducting risk assessments and estimating improper
payments for Federally-funded. State-administered programs.
OMB agrees with this comment. Federal agencies go to great lengths to
ensure that their State partners have all the information they need to
undertake tasks that are mandated at the Federal level and not at the
State level. Nevertheless, we agree that including this type of
instruction in our guidance may prove helpful in clarifying what is
necessary to be included in a proper risk assessment.
4. Share ideas, concerns, and best practices, with Federal agencies and
States, regarding improper payment reporting requirements for Federally-
funded, State-administered programs.
OMB agrees with this comment. As stated previously, OMB is in the
beginning stages of its efforts to launch a Federal-State partnership
to accomplish the very items listed in GAO's fourth recommendation. We
also take every opportunity to collaborate with States through
conferences, State auditor/controller meetings, and grant management
gatherings, and to attempt enlist States' participation and cooperation
in our program integrity efforts.
We were pleased to have the opportunity to comment on GAO's draft
report GAO-06-347. Feel free to address any questions to Sally Beecroft
of my staff at (202) 395-1040 or sbeecroft@omb.eop.gov In addition, we
have included technical comments as the enclosure to this letter, as
Appendix 1.
Sincerely,
Signed by:
Linda M. Combs:
Controller:
Enclosure:
Appendix VIII: GAO Contact and Staff Acknowledgments:
GAO Contact:
McCoy Williams, (202) 512-9095 or [Hyperlink, williamsm1@gao.gov]:
Acknowledgments:
In addition to the contact named above, Carla Lewis, Assistant
Director; Verginie Amirkhanian; Francine DelVecchio; Louis Fernheimer;
Danielle Free; Wilfred Holloway; Stuart Kaufman; Donell Ries; and Bill
Valsa made important contributions to this report.
[End of section]
Related GAO Products:
Financial Management: Challenges Continue in Meeting Requirements of
the Improper Payments Information Act.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-581T]
Washington, D.C.: April 5, 2006.
Financial Management: Challenges Remain in Meeting Requirements of the
Improper Payments Information Act.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-482T]
Washington, D.C: March 9, 2006.
Financial Management: Challenges in Meeting Governmentwide Improper
Payment Requirements.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-907T]
Washington, D.C.: July 20, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-605T]
Washington, D.C.: July 12, 2005.
Food Stamp Program: States Have Made Progress Reducing Payment Errors,
and Further Challenges Remain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-245]
Washington, D.C.: May 5, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-417]
Washington, D.C.: March 31, 2005.
Medicaid Program Integrity: State and Federal Efforts to Prevent and
Detect Improper Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-707]
Washington D.C.: July 16, 2004.
TANF and Child Care Programs: HHS Lacks Adequate Information to Assess
Risk and Assist States in Managing Improper Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-723]
Washington, D.C.: June 18, 2004.
Financial Management: Fiscal Year 2003 Performance and Accountability
Reports Provide Limited Information on Governmentwide Improper
Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-631T]
Washington, D.C.: April 15, 2004.
Financial Management: Status of the Government Efforts to Address
Improper Payment Problems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-99]
Washington, D.C.: October 17, 2003.
Financial Management: Effective Implementation of the Improper Payments
Information Act of 2002 Is Key to Reducing the Government's Improper
Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-991T]
Washington, D.C.: July 14, 2003.
Financial Management: Challenges Remain in Addressing the Government's
Improper Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-750T]
Washington, D.C.: May 13, 2003.
Financial Management: Coordinated Approach Needed to Address the
Government's Improper Payments Problems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-749]
Washington, D.C.: August 9, 2002.
Unemployment Insurance: Increased Focus on Program Integrity Could
Reduce Billions in Overpayments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-697]
Washington, D.C.: July 12, 2002.
Financial Management: Improper Payments Reported in Fiscal Year 2000
Financial Statements.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-131R]
Washington, D.C.: November 2, 2001.
Strategies to Manage Improper Payments: Learning From Public and
Private Sector Organizations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-69G]
Washington, D.C.: October 2001.
Financial Management: Billions in Improper Payments Continue to Require
Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-44]
Washington, D.C.: October 27, 2000.
(195043):
FOOTNOTES
[1] Federal funds are distributed through a variety of awards,
including grants and cooperative agreements.
[2] For GAO's audit report on the U.S. government's consolidated
financial statements for fiscal year 2005, see Department of the
Treasury, Fiscal Year 2005 Financial Report of the United States
Government (Washington, D.C.: December 2005), 152-153, which can be
found on GAO's Internet site at www.gao.gov.
[3] For report purposes, the term state-administered indicates federal
programs that are managed on a day-to-day basis at the state level to
carry out program objectives.
[4] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
[5] OMB Circular No. A-87, Cost Principles for State, Local, and Indian
Tribal Governments. See also OMB Circular No. A-102, Grants and
Cooperative Agreements with State and Local Governments, and OMB
Circular No. A-133, Audits of States, Local Governments, and Non-Profit
Organizations, and the related A-133 Compliance Supplement.
[6] OMB Memorandum M-03-13, "Improper Payments Information Act of 2002
(Public Law 107-300)," May 21, 2003.
[7] For reporting purposes, we used 51 when quantifying the universe of
states, which comprises the 50 states and the District of Columbia.
[8] The primary recipient is the state or other entity that receives
funding directly from the federal government. Past the primary
recipient would be funding that flows from the state or other entity to
a beneficiary or subrecipient.
[9] OMB's improper payment guidance is cited in footnote 6 of this
report. OMB's recovery auditing guidance refers to two OMB memorandums-
-OMB Memorandum M-03-07, "Programs to Identify and Recover Erroneous
Payments to Contractors," January 16, 2003, and OMB Memorandum M-03-12,
"Allowability of Contingency Fee Contracts for Recovery Audits," May 8,
2003.
[10] All 51 states reported an estimate for their Food Stamp and UI
programs in fiscal year 2003 and fiscal year 2004. However, these
programs were not identified as major programs for 4 of the 51 states,
thereby limiting to 47 the number of states asked to respond to our
survey for those programs.
[11] Department of Agriculture, Food and Nutrition Service, FNS
Handbook 310: Food Stamp Program Quality Control Review Handbook
(Alexandria, Va.: October 2003).
[12] GAO, Unemployment Insurance: Increased Focus on Program Integrity
Could Reduce Billions in Overpayments, GAO-02-697 (Washington, D.C.:
July 12, 2002).
[13] The Highway Planning and Construction Program is also referred to
as the Federal-Aid Highway Program.
[14] According to HHS, a medical review error is an error that is
determined from a review of the medical documentation compared with the
information presented on the claim. An eligibility review error occurs
when a payment for the sampled service or when a capitation payment,
which is a payment based on a predetermined agreement rather than
actual cost, covering the date of service is in error in full or in
part based on the eligibility status of the person as of the proper
date of review. A data-processing review error is an error resulting in
an overpayment or underpayment that could be avoided through the
state's information system.
[15] 31 U.S.C. §§ 7501-7507. Under the Single Audit Act, as amended,
and implementing guidance, independent auditors audit state and local
governments and nonprofit organizations that expend federal awards to
assess, among other things, compliance with laws, regulations, and the
provisions of contracts or grant agreements material to the entities'
major federal programs. Organizations are required to have single
audits if they expend $500,000 or more in federal funds.
[16] Prior to fiscal year 1997, there was a federal requirement that
each state have a quality control system in place for what was then
known as the Aid to Families with Dependent Children Program, and
report on payment accuracy. Concurrent with the restructuring of this
program, in fiscal year 1997, this requirement was removed, but six
states in our survey continued the payment accuracy reviews.
[17] We should note that single audits, by themselves, may lack the
level of detail necessary for achieving IPIA requirements.
Specifically, single audits generally focus on the largest dollars in
an auditee's portfolio. Thus, all programs identified as susceptible to
improper payments at the federal level may not receive extensive
coverage under a single audit. Consequently, both the depth and level
of detail of single audit results are, generally, insufficient to
identify improper payments, estimate improper payments, or both.
[18] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[19] GAO, Strategies to Manage Improper Payments: Learning From Public
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October
2001).
[20] Pub. L. No. 107-107, div. A, title VIII § 831, 115 Stat. 1012,
1186 (Dec. 28, 2001) (codified at 31 U.S.C. §§ 3561-3567).
[21] OMB Memorandum M-03-07, "Programs to Identify and Recover
Erroneous Payments to Contractors," January 16, 2003.
[22] TEX. GOV'T CODE ANN. §2115.002 (2005).
[23] TEX. GOV'T CODE ANN. §2115.003 (2005).
[24] State of Texas, Legislative Budget Board, Staff Performance Report
to the 79th Legislature (Austin, Tex.: January 2005).
[25] GAO, Food Stamp Program: States Have Made Progress Reducing
Payment Errors, and Further Challenges Remain, GAO-05-245 (Washington,
D.C.: May 5, 2005).
[26] Because one or more responses were identified for each of the 100
program surveys, the universe of responses related to the types of
guidance and resources needed totaled 170. We categorized these
responses as follows: (1) guidance on estimating improper payments, (2)
additional funding, (3) sharing of best practices and available
guidance, (4) assessing risk/risk assessment instruments, (5)
recognition of state input, and (6) other.
[27] CFOC/PCIE Federal Erroneous and Improper Payments Workgroup,
Grants Subgroup Report (Washington, D.C.: March 2005).
[28] OMB issues a Compliance Supplement (March 2004, as revised) with
Circular No. A-133, Single Audits of States, Local Governments, and Non-
Profit Organizations, as revised (June 27, 2003), which identifies
compliance requirements that should be considered in state and local
government single audits. Portions of the compliance supplement have
requirements for specific programs.
[29] Consistent with the report, we refer to all respondents to the
survey as states.
[30] GAO, Strategies to Manage Improper Payments: Learning From Public
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October
2001).
[31] 7 U.S.C. § 2025(c); 7 C.F.R. §§ 275.10-14; and FNS Handbook 310.
[32] Under current statute, employers need only be registered in one
state's new hire database, despite having work locations or employees
in other states.
[33] Executive Order RP36, Relating to Preventing, Detecting, and
Eliminating Fraud, Waste and Abuse, Governor of the State of Texas
(July 12, 2004).
[34] FFS is a traditional method of payment for medical services under
which providers are paid for each service rendered.
[35] Managed care is any system of delivering health services through a
specified network of doctors and hospitals that agree to comply with
the care approaches established by a care-management process.
[36] All sampling units, including the FFS line item and managed care
capitation payment, are referred to as a claim.
[37] To determine the states' error rates, we used the inverse of the
accuracy rates published by HHS's CMS.
[38] Smart cards can contain various information, such as client
account, biometric, and health information. Smart cards can be
programmed to be ATM enabled and be used as a source of data
transmission between providers, pharmacies, and labs.
[39] In the Medicare/Medicaid data match program, claims data from both
programs are analyzed together to detect patterns that may not be
evident when billings for either program are viewed separately. This
data match allows CMS to identify previously undetected patterns, such
as providers who bill the government for more than 24 hours a day in
both programs.
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